Standard Chartered PLC - Performance highlights For thesix ... · 1 Standard Chartered PLC -...

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Standard Chartered PLC - Performance highlights

For the six months ended 30 June 2018

Standard Chartered PLC (the Group) today releases its results for the six months ended 30 June 2018. All figuresare presented on an underlying basis and comparisons are made to the equivalent period in 2017 unless otherwisestated. A reconciliation between statutory and underlying results is set out on page 87 of the 2018 half year report.

“The Group performed steadily in the first half with encouraging progress on several fronts. Income from key areasof focus continues to grow strongly, we are investing in exciting new initiatives, and our strengthened risk disciplineis paying off. Our return on equity improved to 6.7 per cent as a result, reinforcing our confidence that we willexceed 8 per cent in the medium term and underpinning the Board’s decision to resume the interim dividend”

Bill Winters, Group Chief Executive

Financial performance for the first half of the year

• Significant improvement in profitability reflects further progress on the path to higher returnso Underlying profit before tax of $2.4bn was up 23% with broad-based improvement by client segment and

regiono Statutory profit before tax of $2.3bn is stated after restructuring and other items and was 34% highero RoE improved 150 basis points to 6.7% and RoTE improved 170 basis points to 7.5%

• Operating income of $7.6bn was up 6% in line with medium-term guidance of 5-7% CAGRo Areas of differentiated strength including Wealth Management and Transaction Banking grew 14%o Income net of impairment was 11% higher driven by a continued focus on higher quality originationo Net interest income increased 10% and the net interest margin improved 4 basis points to 1.59%

• Operating expenses rose 7% to $5.1bn as the Group prioritised investment to improve the businesso The four-year $2.9bn gross cost efficiency target was achieved six months ahead of plano Cash investments of $660m were 10% higher with an increased proportion on strategic initiativeso Other operating expenses were up 7% reflecting a more even phasing of investments than in 2017o Regulatory costs were 9% lower half-on-half as several large programmes were implemented in 2017o Operating expenses ex-UK bank levy in H2 2018 are expected to be similar to H1 2018

• Asset quality improved due to a continued focus on better quality origination within a more granular risk appetiteo Credit impairment of $293m was 50% lower year-on-year and 53% lower half-on-halfo Significant improvements in CIB and RB more than offset higher impairment in CB

• Basic earnings per share increased from 34.4 cents to 44.9 cents• Interim dividend resumed at 6 cents per share reflecting improved financial performance and strong capital• The UK bank levy is charged in December and is estimated to be around $310m

Balance sheet and capital

• Capital and liquidity ratios remain strongo CET1 ratio increased 60 basis points to 14.2%o Liquidity coverage ratio 151% with a prudent surplus to regulatory requirements

• Strong and broad-based growth in client assets and client liabilities

Summary and outlook

• We are building for the long term to create a differentiated proposition for all our stakeholders• Income growth was in line with 5-7% medium-term guidance and higher where we have prioritised investments• We are investing more into exciting new growth and digital initiatives and this investment is more evenly phased• We continue to expect that expenses will grow below inflationover the medium term• Organic capital generation and improved credit quality is increasing our resilience to shocks• Geopolitical uncertainties persist but the macroeconomic environment is supported by solid growth fundamentals• We remain confident the strategy will deliver a return on equity greater than 8% in the medium term

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Standard Chartered PLC - Summary of results


6 months ended30.06.18$million



Underlying performance

Operating income 7,649 7,067 7,222Operating expenses (5,117) (5,351) (4,769)Credit impairment (293) (617) (583)Other impairment (51) (85) (84)Profit before taxation 2,356 1,091 1,919Return on ordinary shareholders’ equity (%) 6.7 1.9 5.2Return on ordinary shareholders’ tangible equity (%) 7.5 2.1 5.8Cost to income ratio (%) 66.9 75.7 66.0

Statutory performance

Operating income 7,627 7,204 7,221Operating expenses (5,185) (5,547) (4,870)Credit impairment (214) (707) (655)Goodwill impairment – (320) –Other impairment (50) (86) (93)Profit before taxation 2,346 661 1,754Profit/(loss) attributable to parent company shareholders 1,560 23 1,196Profit/(loss) attributable to ordinary shareholders1 1,343 (197) 971Return on ordinary shareholders’ equity (%) 6.1 (0.9) 4.5Return on ordinary shareholders’ tangible equity (%) 6.8 (1.0) 5.0Net interest margin (%) 1.6 1.6 1.6Cost to income ratio (%) 68.0 77.0 67.4

Balance sheet and capital

Total assets 694,874 663,501 657,638Total equity 51,488 51,807 51,362Loans and advances to customers 255,100 248,707 239,198Customer accounts 382,107 370,509 357,810Total capital 58,019 58,758 58,335Advances-to-deposits ratio (%)2 68.2 69.4 67.5Common Equity Tier 1 ratio (%) 14.2 13.6 13.8Total capital (%) 21.3 21.0 21.3UK leverage ratio (%) 5.8 6.0 6.0

Information per ordinary share Cents Cents Cents

Earnings per share – underlying 44.9 12.8 34.4– statutory 40.7 (6.0) 29.5

Ordinary dividend per share3 6.0 11.0 –Net asset value per share 1,353.4 1,366.9 1,356.7Tangible net asset value per share 1,202.8 1,214.7 1,203.5

1 Profit/(loss) attributable to ordinary shareholders is after the deduction of dividends payable to the holders of non-cumulative redeemable preference shares and Additional Tier 1securities classified as equity

2 The following balances are included when calculating this ratio: reverse repurchase agreements and other similar secured lending of $37,909 million, repurchase agreements andother similar secured borrowing of $46,675 million, loans and advances to customers held at fair value through profit or loss of $3,710 million and customer accounts held at fair valuethrough or loss of $6,232 million

3 Represents the recommended interim dividend per share for 2018 and the final dividend per share for 2017

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Standard Chartered PLC – Table of contents

Page

Performance highlights 1

Summary of results 2

Group Chairman’s statement 4

Group Chief Executive’s review 6

Group Chief Financial Officer’s review 8

Client segment reviews 15

Regional reviews 25

Group Chief Risk Officer’s review 31

Risk review 39

Capital review 85

Financial statements and notes 92

Supplementary financial information 158

Shareholder information 189

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Standard Chartered PLC – Group Chairman’s statement

Group Chairman’s statement

Striving to be the best we can be for all our stakeholders

I am pleased to report further progress in the first half of the year on our strategic priorities, resulting in positive incomegrowth year-on-year in each of our four client segments, a 23 per cent increase in underlying profit before tax and astronger Common Equity Tier 1 ratio of 14.2 per cent. Given the improved performance, the Board has declared aninterim dividend of 6 cents per share.

Opportunities remain substantial

Our improved performance was delivered against a backdrop of continued global economic growth, with strong tradeflows and investments and US interest rates continuing to normalise.

However, the global expansion is becoming more uneven and while some geopolitical concerns have receded, othershave increased, particularly surrounding the trading relationship between the US and China. Given our history andpurpose – to drive commerce and prosperity through our unique diversity – we believe that trade protectionism wouldbe bad for the global economy. It is, however, worth noting that although the income we make from China’s manytrade corridors is important for the Group, our priorities are those radiating from China in Asia, and along the Belt andRoad Initiative routes connecting China with our markets in Africa and the Middle East. As a result, our directexposure to the risks of US-China trade tensions is limited; we generate far more income financing commercebetween China and other markets in our footprint – meaning we stand to benefit over time if that were to increase –than we do on trade between China and the US.

Overall, the opportunities for our unique franchise remain substantial.

Focusing on clear priorities

The Board and management team are focused on executing the Group’s strategy, while preserving strong levels ofcapital and liquidity, further improving the quality of our balance sheet and reinforcing our risk managementframework. Our good progress in this regard is described by Andy in the Group Chief Financial Officer’s review. Thiswill increase our resilience to potential threats and shocks.

Now we have built a stable base, we are moving on to the offensive, focusing on what we can control and embeddingan enhanced performance culture that will ensure we fully capture the opportunities.

In this context, I see the Board’s role as supporting an environment where our colleagues feel able to focus on ourclients’ needs, innovate and take sensible risks to grow and strengthen our business. As Bill explains in his GroupChief Executive’s review, we are investing at a faster pace to improve the business, including in new digital bankingcapabilities across all our markets, from the smallest to the largest, and in initiatives that will make us more productiveby enhancing internal efficiency and programme management capabilities to drive lasting change.

As I said in the 2017 Annual Report, the Board is overseeing far-reaching changes to transform the Group’s responseto financial crime, both internally as well as in partnership with other organisations around the world. You can readmore about what we are doing on this critical journey in the reviews of the Group’s Chief Executive and Chief RiskOfficer.

Reinforcing excellent governance, and a culture of ethical banking

The Board discusses with depth and candour the strategic issues that face the Group and provides challenge tomanagement. Once agreement has been reached, the Board supports the management team, and holds itaccountable for execution.

As well as reviewing performance and our strategic priorities, in the first half of this year the Board has focused on keyissues such as cyber security, strengthening all facets of diversity, our approach to environmental and social issues,and our external narrative and brand.

We recently refreshed our brand, retaining the original brand promise of Here for good, but developing it further byposing a new – and tougher – challenge: how can banks help tackle some of the problems that stand in the way ofglobal prosperity and commerce? With the acknowledgment that things are not good enough yet, not with theindustry, not with the world we live in, or with ourselves, we are determined to play our part in helping to make thingsbetter.

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Standard Chartered PLC – Group Chairman’s statement

We have also agreed our new sustainability philosophy. This reflects a shift of focus of our environmental andsustainability efforts away from just talking about what we won’t do, to increasing our focus on the contribution wecan make to promoting sustainable economic and social development to transform the markets in which we operatefor the better.

We acknowledge that it can be challenging to balance environmental, social and economic needs. Our revisedphilosophy sets out how we integrate sustainability into our organisational decision-making and how we will work withour clients, suppliers, NGOs and governments in our markets to address some of those dilemmas.

We want to be a force for good by working with our clients to improve their sustainability performance. This will furtherstrengthen and develop our long-term relationships with our clients, contributing to their competitive advantage andpromoting sustainable economic growth in our communities.

Conclusion

As we said when we relaunched our brand: Good enough will never change the world. We will never settle for goodenough. Instead, I and all of my colleagues across the world will strive to be the best we can be for all ourstakeholders, including our investors, clients, colleagues and communities.

I am confident we have the strategy and ability to successfully complete our transformation and deliver sustainablyhigher returns over the medium and long term.

José ViñalsGroup Chairman

31 July 2018

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Standard Chartered PLC - Group Chief Executive’s review

Group Chief Executive’s review

Further progress on the path to higher returns

The Group performed steadily in the first half, with encouraging progress on several fronts. Income from key productscontinues to grow strongly, we are investing in exciting new digital and other transformative initiatives and ourstrengthened risk discipline is paying off.

Our return on equity improved year-on-year as a result, which reinforces our confidence that we will exceed 8 per centin the medium term and validates our decision to resume an interim dividend. But I want to be clear that we believe 8per cent is just a milestone on the route to the sustainably higher returns we can achieve if we continue to execute ourstrategy with consistency, determination and discipline.

Focusing on the client experience

We have a unique proposition which we know our clients value. We are focusing our energy and our investments onthe areas where we can provide exceptional solutions to our clients’ needs. But we know that technical solutions areonly part of the story. That is why our strategy is, first and foremost, centred around delivering the highest-qualityclient experience. And I am pleased to report that our efforts are working.

On the corporate side we are reinforcing and improving our position as a leading bank in Asia, Africa and the MiddleEast. Independent research suggests large corporations in Asia are consolidating their international business. This isgood for us as we have diversified product and regional capabilities and our clients tell us that we offer increasinglyexceptional service. This is reflected, for example, in our growing Cash Management income and increasing tradevolumes. Although our improving league table positions in Financial Markets are not yet evident in our financial results,clients are offering us an increasing share of their business, boding well for future financial improvement.

And on the personal side, our strategy to become a trusted adviser for the affluent and emerging affluent, especially incore commercial cities in our markets, has resulted in our Priority and Private Banking client segments growing nicely.The more affluent clients rated us the best international bank in seven of our eight largest markets last year, and ourNet Promoter Score within that strategically important segment improved significantly year-on-year in six of them,including in India and Singapore where we are growing income and starting to regain share lost over the past decade.

Improving business performance

Income year-on-year grew in line with the 5-to-7 per cent medium-term target range that we laid out in February thisyear. And if you adjust that income for impairment charges – considered a good indicator of underlying quality – itincreased by 11 per cent. Around half of our income now comes from differentiated and faster-growing productsincluding Wealth Management and Transaction Banking. Our businesses in Greater China & North Asia continue toperform particularly strongly, alongside plenty of good performances and encouraging signs in our other regions.

We are committed to improving the returns of our mass market and lending businesses and on our lower-returningcorporate clients, both through delivering a broader range of profitable products and services, as well as throughmore actively managing our funding costs and capital allocation. We will continue this progress, even if it means weconclude that we cannot sensibly retain some clients or the expenses we carry to cover them.

Investing intelligently

Accelerating our pace of digitisation is, and will remain, a key strategic priority.

We continue to improve the digital connections that link our clients to our world-class lending, wealth, riskmanagement and transaction banking products. Where we do not have the capabilities ourselves, or where we areless differentiated, we connect to third parties who can best address our clients’ needs – an open-architectureapproach that has served us, our partners and our clients well over the years in our wealth management business.

That is why we are so energised by the FinTech revolution; these disruptors provide us with the capabilities of muchlarger firms, but in a cost-effective and timely way. We are currently working with over fifty FinTech companies – fromsmall start-ups to the biggest platforms – to transform our ability to serve our clients digitally. Our recently announcedpartnership with Ant Financial, part of the Alibaba Group, is one example of this. Together, we have created ablockchain-based cross-border wallet remittance service between Hong Kong and the Philippines through which weleverage jointly-developed technologies to deliver competitive and secure financial services across our uniquelydiverse network.

We are also developing our own innovative digital methods of acquiring and servicing clients. Recent successes withour new digital bank in Côte d’Ivoire and our real-time onboarding process in India are encouraging. We will scale and

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Standard Chartered PLC - Group Chief Executive’s review

extend these digital innovations across all of our markets – including in Hong Kong where we are in the process ofapplying for a virtual banking license – allowing us to cover ever greater client volumes more efficiently.

Fighting financial crime in the digital era

While technological advances make doing business simpler, faster and better, the diffusion of cyber capabilities in thecriminal underworld also makes the fight against financial crime more difficult. No matter how challenging it mayseem, however, we are determined to play a leading role in fighting financial crime and to mitigate its heart-breakingimpact on the communities that we are dedicated to serve.

Since 2012, we have seen a nearly ten-fold increase in our annual financial crime compliance (FCC) spending, and amore-than seven-fold increase in FCC headcount. We are investing in new machine-learning technologies that willenable us to evaluate vast quantities of data quickly and to fine-tune the accuracy of our financial crime surveillancetools, freeing up more capacity to investigate suspicious behavioural and transactional patterns. We are forgingpublic-private partnerships with regulators, financial intelligence units, enforcement agencies and other banks aroundthe world to disrupt illicit financial flows. And we are also developing new cyber capabilities of our own: from virtualcurrency mapping to enhanced profiling.

As described in note 19 to the financial statements, we continue to cooperate with authorities in the US and the UK intheir investigations of past conduct and are engaged in ongoing discussions to resolve them. While the DeferredProsecution Agreements (DPAs) with certain US agencies have recently been extended pending resolution of therelevant reviews, the US Department of Justice also recognised that the Group has made significant progress incomplying with the DPA and in enhancing our sanctions compliance programme. Concluding these historical mattersremains a focus for us.

Continuing our cultural transformation

We are strengthening our performance culture to match our ambition to be leaders in the markets we serve and to bea driving force for commerce and prosperity in and across those communities.

The needs of our clients and the markets in which we operate are constantly changing. We need to get ahead of thechange by continuously innovating and improving. We need to harness the collective intelligence of all our people –their diverse thinking, experiences and backgrounds.

I am constantly inspired by the enthusiasm of my colleagues across the Group, but also dismayed at the degree towhich it can be ground down through unnecessarily complicated processes and bureaucracy. This slows us down onour path to sustainably higher returns and we are determined to root out and destroy inefficiencies.

Employees are responding well to this challenge. In the past two years our employee Net Promoter Score hasincreased from positive 2, to positive 6, to positive 10, meaning that an increasingly large proportion of employeeswould now recommend the Group as a place to work and the products and services we provide. While the work is farfrom complete, we are progressing with our cultural transformation to make Standard Chartered a great place to workat, as well as a great bank with which to do business.

Outlook and conclusion

The macroeconomic environment continues to be supported by solid growth fundamentals across our markets but,concurrently, challenged by increasing uncertainty resulting from escalating trade frictions and geopolitical risks. Wetherefore remain cautiously optimistic on global economic growth.

We have committed to delivering a differentiated proposition for all our stakeholders, and to generating the sustainablyhigher returns of which we know this unique franchise is capable. Our long-term focus in this regard in no waydiminishes our sense of short-term urgency. We have been on a transformation tear these last few years and will notslow down a bit.

I look forward to reporting to you in February next year when I expect to deliver more evidence of progress against ourextraordinary agenda.

Bill WintersGroup Chief Executive

31 July 2018

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Standard Chartered PLC - Group Chief Financial Officer’s review

Group Chief Financial Officer’s review

Higher quality business delivering an encouraging performance

Performance summary




H1 2018 vsH2 2017

Better/(worse)%

H1 2018 vsH1 2017

Better/(worse)%

Operating income 7,649 7,067 7,222 8 6Other operating expenses (4,479) (4,429) (4,170) (1) (7)Regulatory costs (638) (702) (599) 9 (7)UK bank levy – (220) – n.m. n.m.

Operating expenses (5,117) (5,351) (4,769) 4 (7)Operating profit before impairment and taxation 2,532 1,716 2,453 48 3Credit impairment (293) (617) (583) 53 50Other impairment (51) (85) (84) 40 39Profit from associates and joint ventures 168 77 133 118 26Underlying profit before taxation 2,356 1,091 1,919 116 23Restructuring (79) (188) (165) 58 52Other items 69 (242) – n.m. n.m.Statutory profit before taxation 2,346 661 1,754 n.m. 34Taxation (753) (599) (548) (26) (37)

Profit for the period 1,593 62 1,206 n.m. 32

Net interest margin (%) 1.6 1.6 1.6Underlying return on equity (%) 6.7 1.9 5.2Underlying return on tangible equity (%) 7.5 2.1 5.8Statutory return on equity (%) 6.1 (0.9) 4.5Statutory return on tangible equity (%) 6.8 (1.0) 5.0Underlying earnings per share (cents) 44.9 12.8 34.4Earnings/(loss) per share (cents) 40.7 (6.0) 29.5Dividend per share (cents) 6.0 11.0 –Common Equity Tier 1 (%) 14.2 13.6 13.8

The Group’s improved performance in the first half of 2018 represents further encouraging progress.

All figures in this review are presented on an underlying basis and comparisons are made to the equivalent period in2017 unless otherwise stated. A full reconciliation between statutory and underlying results is set out in note 2 to thefinancial statements.

• Underlying profit before tax of $2.4 billion was 23 per cent higher and statutory profit before tax was up 34per cent

• Operating income of $7.6 billion grew 6 per cent or 5 per cent on a constant currency basis with stronggrowth in Transaction Banking, Wealth Management and Deposits more than offsetting lower income fromCorporate Finance and the non-repeat of Treasury gains in 2017

• Operating expenses of $5.1 billion were up 7 per cent or 5 per cent on a constant currency basis as theGroup accelerated investment to improve the business

• Expenses in the second half of 2018 excluding the UK bank levy are expected to be similar to the first half ofthe year

• Credit impairment of $293 million on an IFRS 9 basis was 50 per cent lower and reflects management actionsto improve asset quality

• Other impairment of $51 million related primarily to transport leasing assets

• Profit from associates and joint ventures of $168 million was 26 per cent higher following a continued goodperformance by the Group’s associate investment in China and a better performance by its joint venture inIndonesia

• Net restructuring charges of $79 million related primarily to Principal Finance and the ongoing reduction of theliquidation portfolio

• Other items included a $69 million gain following the redemption of some GBP-denominated securities

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• The Common Equity Tier 1 (CET1) ratio of 14.2 per cent gained a further 60 basis points in the first half

• The Group’s return on equity improved 150 basis points to 6.7 per cent and its return on tangible equityimproved 170 basis points to 7.5 per cent

• The improved financial performance and the Group’s strong capital position underpinned the Board’sdecision to declare an interim dividend of 6 cents per ordinary share

Income

Operating income was up 6 per cent or 5 per cent on a constant currency basis. Sustained momentum in TransactionBanking, Wealth Management and Deposits more than offset the impact of continued asset margin compression. Thecombination of favourable macroeconomic conditions and further progress improving the quality of the businessreinforces the Group’s guidance for a 5-to-7 per cent medium-term compound annual growth rate in income.

• Corporate & Institutional Banking income was 7 per cent higher as the focus on high quality operatingaccounts and the benefit of rising global interest rates resulted in a 25 per cent increase in income from CashManagement that more than offset the impact of asset margin compression in Corporate Finance and TradeFinance. Income in Financial Markets was 4 per cent higher despite mixed but overall challenging marketconditions and Foreign Exchange spread compression in part driven by clients’ increasing preference forelectronic channels

• Retail Banking income was up 9 per cent driven by strong performances in Greater China & North Asia andASEAN & South Asia, particularly in Hong Kong and Singapore. Together that offset lower income in Africa &Middle East where market conditions remained challenging. The business continues to benefit from the focuson affluent and emerging affluent clients with income from Wealth Management 15 per cent higher

• Commercial Banking income was up 7 per cent with the businesses in Greater China & North Asia andASEAN & South Asia growing 12 per cent and 9 per cent respectively. Together this offset 4 per cent lowerincome from Africa & Middle East

• Private Banking income was 12 per cent higher with growth across all products. The business added $1.6billion net new money over the past 12 months and assets under management were $5 billion higher

• Income in Central & other items (segment) was 15 per cent lower impacted by the non-repeat of gains inTreasury primarily in India in the prior period

• Income from Greater China & North Asia increased 11 per cent and 9 per cent on a constant currency basiswith broad-based improvement across all markets particularly China and Hong Kong

• Income from ASEAN & South Asia was 6 per cent higher and 3 per cent on a constant currency basis withgrowth in most markets and particularly Singapore where income was up 15 per cent. Excluding Treasurygains booked in the prior period income in India was broadly stable

• Income from Africa & Middle East was 1 per cent lower and broadly stable on a constant currency basis asmarket conditions there remained challenging

• Europe & Americas income grew 8 per cent with 10 per cent higher income in the UK more than offsetting 3per cent lower income in the US. The region is an important hub for the Group and originates aroundone-third of Corporate & Institutional Banking total income

Expenses

Operating expenses of $5.1 billion were up 7 per cent or 5 per cent on a constant currency basis and broadly flathalf-on-half. Increases year-on-year were driven by investments in people and technology, including the amortisationof cash investments made in prior periods. Expenses in the second half of 2018 excluding the UK bank levy areexpected to be similar to the first half due to the more even phasing of investments compared to 2017.

The Group has achieved its four-year $2.9 billion gross cost efficiency target six months ahead of plan. The ongoingdiscipline of delivering gross cost efficiencies to fund investments is expected to result in cost growth below the rateof inflation over the medium term.

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Impairment

Credit impairment of $293 million was 50 per cent lower driven by a significant reduction in impairment in Corporate &Institutional Banking reflecting past actions to improve the risk profile of this business and the continued focus on highquality new origination. This was partially offset by an increase in Commercial Banking.

Other impairment of $51 million related primarily to transport leasing assets.

Profit from associates and joint ventures

Profit from associates and joint ventures of $168 million reflected the continuing good performance of the Group’sassociate investment in China and a better performance by its joint venture in Indonesia.

As a result, profit before tax of $2.4 billion was 23 per cent higher and statutory profit before tax of $2.3 billion which isstated after restructuring and other items was 34 per cent higher.

Profit before taxOperating profit improved significantly in Corporate & Institutional Banking and Retail Banking driven by incomegrowth and lower impairments, which offset lower profit in Commercial Banking. By region, operating profitimprovement was broad-based, with Hong Kong and Singapore performing particularly strongly. The prior yearperformance in Central & other items (segment) was impacted by the non-repeat of gains in Treasury.

6 monthsended

30.06.18$million

6 monthsended

30.06.17$million

Better/(worse)

%

6 monthsended

30.06.18$million

6 monthsended

30.06.17$million

Better/(worse)

%

Corporate & Institutional Banking 1,093 648 69 Greater China & North Asia 1,289 1,025 26Retail Banking 617 501 23 ASEAN & South Asia 589 400 47Commercial Banking 140 188 (26) Africa & Middle East 387 369 5Private Banking (5) (1) n.m Europe & Americas 86 66 30Central & other items 511 583 (12) Central & other items 5 59 (92)

Underlying profit before taxation 2,356 1,919 23 Underlying profit before taxation 2,356 1,919 23

Credit quality

Credit quality overall has continued to improve in the first six months of 2018 due to the disciplined focus on highquality origination within a more granular risk appetite.

IFRS 9 became effective from 1 January 2018 and requires the recognition of expected credit losses rather thanincurred losses under IAS 39. Financial instruments that are not already credit-impaired are originated in stage 1 and a12 month expected credit loss provision is recognised.

An instrument will remain in stage 1 until it is repaid unless it experiences significant credit deterioration in which caseit will transfer to stage 2, or it becomes credit-impaired where it would transfer to stage 3. The Group has not restatedprior periods and comparisons are made to balances as at 1 January 2018.

The Group has made significant progress exiting exposures in the liquidation portfolio with the remaining $1.6 billiongross loans and advances 72 per cent covered or 90 per cent covered after collateral.

Gross credit-impaired (stage 3) loans in the ongoing business of $6.2 billion were $372 million lower following anumber of repayments, debt sales and write-offs and significantly lower new inflows. These exposures represent 2.3per cent of gross loans and advances in the ongoing business and are 53 per cent covered or 76 per cent coveredafter collateral.

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The proportion of investment grade clients has increased to 61 per cent, exposures in the early alerts portfolio havereduced by $1.8 billion and credit grade 12 accounts were $456 million lower.

30.06.18 (IFRS 9) 01.01.18 (IFRS 9)

Ongoing business$million

Liquidationportfolio$million

Total$million

Ongoingbusiness$million

Liquidationportfolio$million

Total$million

Gross loans and advances to customers1 263,056 1,579 264,635 255,591 2,248 257,839

Of which stage 1 and 2 256,885 22 256,907 249,048 22 249,070Of which stage 3 6,171 1,557 7,728 6,543 2,226 8,769

Expected credit loss provisions (4,186) (1,118) (5,304) (4,704) (1,626) (6,330)

Of which stage 1 and 2 (905) – (905) (1,048) – (1,048)Of which stage 3 (3,281) (1,118) (4,399) (3,656) (1,626) (5,282)

Net loans and advances to customers 258,870 461 259,331 250,887 622 251,509

Of which stage 1 and 2 255,980 22 256,002 248,000 22 248,022Of which stage 3 2,890 439 3,329 2,887 600 3,487

Stage 3 cover ratio before collateral (%) 53 72 57 56 73 60Stage 3 cover ratio after collateral (%) 76 90 79 78 88 81Credit grade 12 accounts ($million) 1,027 22 1,049 1,483 22 1,505Early alerts ($million) 6,857 – 6,857 8,668 – 8,668Investment grade corporate exposures (%) 61 – 61 57 – 57

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,231 million at 30.06.18 and $4,568 million at 01.01.18

Restructuring and other items

The Group incurred net restructuring charges of $79 million including a $153 million loss in respect of PrincipalFinance that offset recoveries in relation to the ongoing reduction of the liquidation portfolio.

In other items the redemption of some GBP-denominated subordinated and senior securities resulted in a net gain of$69 million.

6 months ended 30.06.18 6 months ended 31.12.17 6 months ended 30.06.17

Restructuring$million

Other items$million


Other items$million


Other items$million

Operating income (91) 69 59 78 (1) –Operating expenses (68) – (196) – (101) –Credit impairment 79 – (90) – (72) –Other impairment 1 – (1) (320) (9) –Profit/(loss) from associates andjoint ventures – – 40 – 18 –Profit before taxation (79) 69 (188) (242) (165) –

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Balance sheet and liquidity

The Group’s balance sheet is strong, highly liquid and diversified.

Loans and advances to customers were up 3 per cent to $255 billion with broad-based growth across a range ofproducts.

Customer accounts were also higher by 3 per cent as the Group continued to focus on improving the quality and mixof its liabilities.

The advances-to-deposits ratio reduced to 68.2 per cent from 69.4 per cent.

As a result of classification and measurement of financial assets under IFRS 9, $45 billion of reverse repurchaseagreement assets and $38 billion of repurchase agreement liabilities were reclassified as financial assets held at fairvalue through profit or loss. Further details are provided in note 27 to the financial statements.

30.06.18$million

31.12.17$million

Increase/(decrease)

$million

Increase/(decrease)

%

AssetsLoans and advances to banks 55,603 57,494 (1,891) (3)Loans and advances to customers 255,100 248,707 6,393 3Reverse repurchase agreements and other similar secured lending1,2 12,781 54,275 (41,494) (76)Other assets 371,390 303,025 68,365 23

Total assets 694,874 663,501 31,373 5

LiabilitiesDeposits by banks 30,816 30,945 (129) –Customer accounts 382,107 370,509 11,598 3Repurchase agreements and other similar secured borrowing3,4 5,863 39,783 (33,920) (85)Other liabilities 224,600 170,457 54,143 32Total liabilities 643,386 611,694 31,692 5Equity 51,488 51,807 (319) (1)Total equity and liabilities 694,874 663,501 31,373 5

Advances-to-deposits ratio (%) 68.2 69.4

1 Includes loans and advances to banks of $8,550 million at 30.06.18 and $20,694 million at 31.12.17 (see note 14)2 Includes loans and advances to customers of $4,231 million at 30.06.18 and $33,581 million at 31.12.17 (see note 14)3 Includes customer accounts of $2,987 million at 30.06.18 and $35,979 million at 31.12.17 (see note 14)4 Includes deposits by banks of $2,876 million at 30.06.18 and $3,804 million at 31.12.17 (see note 14)

13


Risk-weighted assets

Total risk-weighted assets (RWAs) were 3 per cent or $7.9 billion lower since 31 December 2017 with decreases inCorporate & Institutional Banking and Retail Banking more than offsetting increases in Commercial Banking, PrivateBanking and Central & other items.

Credit risk RWAs were $3.0 billion lower with increases related to underlying asset growth offset by model,methodology and policy changes and the positive impact of foreign exchange translation.

Market risk RWAs decreased by $2.4 billion. Around half of this reduction related to the full recognition of certainstructured products in the Group’s internal models approach. The remainder followed a reduction in trading bookdebt security holdings.

Operational risk RWAs were $2.4 billion lower due to a decrease in the average income over a rolling three-year timehorizon, as lower 2017 income replaced higher 2014 income.

30.06.18$million

31.12.17$million

Increase/(decrease)

$

Increase/(decrease)

%

By client segmentCorporate & Institutional Banking 138,735 147,102 (8,367) (6)Retail Banking 42,719 44,106 (1,387) (3)Commercial Banking 33,261 33,068 193 1Private Banking 6,268 5,943 325 5

Central & other items 50,884 49,529 1,355 3

Total risk-weighted assets 271,867 279,748 (7,881) (3)

By risk typeCredit risk 223,198 226,230 (3,032) (1)Operational risk 28,050 30,478 (2,428) (8)Market risk 20,619 23,040 (2,421) (11)

Capital base and ratios

The Group’s capital and liquidity positions remain strong with all metrics above regulatory thresholds. The CET1 ratioof 14.2 per cent was 60 basis points higher driven by profits in the period and lower RWA, mainly due to foreignexchange translation, lower operational risk RWA and other model changes.

On 4 June 2018, the Group invited holders of a number of GBP-denominated subordinated and senior securities totender their notes for repurchase by the Group. As a result of this liability management exercise and othermovements, tier 2 capital reduced $1.1 billion.

Given the Group’s improving financial performance and strong capital the Board has recommended resuming theinterim dividend at 6 cents per ordinary share.

30.06.18$million

31.12.17$million

Common Equity Tier 1 capital 38,512 38,162Additional Tier 1 capital (AT1) instruments 6,692 6,699

Tier 1 capital 45,204 44,861Tier 2 capital 12,815 13,897

Total capital 58,019 58,758

Common Equity Tier 1 capital ratio end point (%) 14.2 13.6Total capital ratio transitional (%) 21.3 21.0UK leverage ratio (%) 5.8 6.0

14


Outlook and summary

The Group remains vigilant in relation to the impact of current and potential further trade tariffs introduced by China,the US and the EU, and considering geopolitical uncertainties particularly in the Middle East. However these issueshad no apparent impact on our financial performance in the first half.

The combination of favourable macroeconomic conditions and our efforts to improve the quality of the business hasdelivered another encouraging performance in the first half and supports our existing guidance for income growth inthe medium term. This income growth will create capacity to continue investing at scale and pace to further improveand increase the resilience of the business.

Andy HalfordGroup Chief Financial Officer

31 July 2018

15

Standard Chartered PLC - Client segment reviews

Underlying performance by client segment

The following tables provide a breakdown of the Group’s underlying operating income by product and client segment.

Analysis of underlying operating income by product and segment

6 months ended 30.06.18

Corporate &Institutional

Banking$million

RetailBanking$million

CommercialBanking$million

PrivateBanking$million

Central &other items

$millionTotal

$million

Transaction Banking 1,430 10 400 – – 1,840

Trade 385 10 194 – – 589Cash Management and Custody 1,045 – 206 – – 1,251

Financial Markets 1,248 – 153 – – 1,401

Foreign Exchange 439 – 91 – – 530Rates 281 – 17 – – 298Commodities 92 – 12 – – 104Credit and Capital Markets 187 – 6 – – 193Capital Structuring Distribution Group 133 – 14 – – 147Other Financial Markets 116 – 13 – – 129

Corporate Finance 616 – 49 – – 665Lending and Portfolio Management 174 – 104 – – 278Wealth Management – 820 1 170 – 991Retail Products – 1,793 2 101 – 1,896

CCPL and other unsecured lending – 696 – – – 696Deposits – 739 3 83 – 825Mortgage and Auto – 314 – 18 – 332Other Retail Products – 44 (1) – – 43

Treasury – – – – 628 628Other1 (17) (3) (3) – (27) (50)

Total underlying operating income 3,451 2,620 706 271 601 7,649

1 Other includes GSAM



Banking$million





$millionTotal

$million


Trade 401 10 193 – – 604Cash Management and Custody 935 – 193 – – 1,128




CCPL and other unsecured lending – 682 1 – – 683Deposits – 622 3 85 – 710Mortgage and Auto – 358 – 17 – 375Other Retail Products – 39 (1) 1 – 39

Treasury – – – – 455 455Other (5) (1) – – (35) (41)


16




Banking$million





$millionTotal

$million


Trade 392 8 193 – – 593Cash Management and Custody 836 – 168 – – 1,004




CCPL and other unsecured lending – 684 – – – 684Deposits – 623 3 83 – 709Mortgage and Auto – 334 – 15 – 349Other Retail Products – 34 – – – 34

Treasury – – – – 688 688Other (3) 3 – – 18 18


17


Analysis of underlying performance by client segment6 months ended 30.06.18


Banking$million





$millionTotal

$million

Operating income 3,451 2,620 706 271 601 7,649Operating expenses (2,218) (1,884) (460) (275) (280) (5,117)

Operating profit/(loss) beforeimpairment losses and taxation 1,233 736 246 (4) 321 2,532Credit impairment (81) (119) (106) (1) 14 (293)Other impairment (59) – – – 8 (51)Profit from associates and joint ventures – – – – 168 168

Underlying profit/(loss) before taxation 1,093 617 140 (5) 511 2,356Restructuring (76) (4) (1) (6) 8 (79)Gains arising on repurchaseof senior and subordinated liabilities 3 – – – 66 69

Statutory profit/(loss) before taxation 1,020 613 139 (11) 585 2,346

Total assets 310,487 103,581 32,347 13,615 234,895 694,874Of which: loans and advances to customers 143,297 101,530 28,571 13,564 9,808 296,719

Total liabilities 384,593 135,384 35,024 19,938 68,447 643,386Of which: customer accounts 246,667 132,254 32,696 19,830 3,567 435,014

Risk-weighted assets (unaudited) 138,735 42,719 33,261 6,268 50,884 271,867Underlying return on risk-weighted assets(unaudited) 1.5% 2.9% 0.9% (0.2)% 2.1% 1.7%

18




Banking$million





$millionTotal

$million

Operating income 3,278 2,438 673 258 420 7,067Operating expenses (2,286) (1,862) (454) (257) (492) (5,351)Operating profit/(loss) beforeimpairment losses and taxation 992 576 219 1 (72) 1,716Credit impairment (289) (203) (125) (1) 1 (617)Other impairment (90) (1) – – 6 (85)Profit from associates and joint ventures – – – – 77 77

Underlying profit before taxation 613 372 94 – 12 1,091Restructuring (99) (23) (7) (14) (45) (188)Net gains on businesses disposed/held for sale – – – – 78 78Goodwill impairment – – – – (320) (320)

Statutory (loss)/profit before taxation 514 349 87 (14) (275) 661Total assets 293,334 105,178 31,650 13,469 219,870 663,501

Of which: loans and advances to customers 131,738 103,013 28,108 13,351 9,343 285,553Total liabilities 353,582 132,819 36,385 22,203 66,705 611,694

Of which: customer accounts 222,714 129,536 33,880 22,222 3,372 411,724Risk-weighted assets (unaudited) 147,102 44,106 33,068 5,943 49,529 279,748Underlying return on risk-weighted assets(unaudited) 0.8% 1.7% 0.6% 0.0% 0.0% 0.8%



Banking$million





$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 1,095 673 233 (1) 453 2,453Credit impairment (369) (172) (42) – – (583)Other impairment (78) – (3) – (3) (84)Profit from associates and joint ventures – – – – 133 133Underlying profit/(loss) before taxation 648 501 188 (1) 583 1,919Restructuring (176) 4 (6) (1) 14 (165)

Statutory (loss)/profit before taxation 472 505 182 (2) 597 1,754



Risk-weighted assets (unaudited) 143,360 42,935 32,325 5,888 49,655 274,163Underlying return on risk-weighted assets(unaudited) 0.9% 2.4% 1.2% 0.0% 2.3% 1.4%

19


Analysis of underlying performance by Retail Banking and Commercial Banking segments

Retail Banking6 months ended 30.06.18

Greater China &North Asia

$million

ASEAN &South Asia

$million

Africa &Middle East

$millionEurope & Americas

$millionTotal

$million

Operating income 1,485 712 404 19 2,620Operating expenses (972) (559) (338) (15) (1,884)

Operating profit before impairment losses and taxation 513 153 66 4 736Credit impairment (31) (65) (23) – (119)

Underlying profit before taxation 482 88 43 4 617Restructuring (1) (3) – – (4)

Statutory profit/(loss) before taxation 481 85 43 4 613

Loans and advances to customers 66,897 28,128 5,973 532 101,530Customer accounts 90,840 31,292 8,987 1,135 132,254



$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million


Operating profit before impairment losses and taxation 395 96 79 6 576Credit impairment (95) (69) (39) – (203)Other impairment (1) – – – (1)

Underlying profit before taxation 299 27 40 6 372Restructuring (8) (1) (14) – (23)





$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million


Operating profit before impairment losses and taxation 450 121 96 6 673Credit impairment (55) (77) (40) – (172)

Underlying profit before taxation 395 44 56 6 501Restructuring (1) 3 2 – 4



20


Commercial Banking6 months ended 30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$millionTotal

$million

Operating income 295 263 148 706Operating expenses (198) (160) (102) (460)

Operating profit before impairment losses and taxation 97 103 46 246Credit impairment (17) (25) (64) (106)

Underlying profit before taxation 80 78 (18) 140Restructuring (1) – – (1)

Statutory profit/(loss) before taxation 79 78 (18) 139

Loans and advances to customers 14,628 9,281 4,662 28,571Customer accounts 20,496 9,282 2,918 32,696



$million

ASEAN &South Asia

$million

Africa &Middle East

$millionTotal

$million

Operating income 263 262 148 673Operating expenses (193) (160) (101) (454)Operating profit before impairment losses and taxation 70 102 47 219Credit impairment 32 (97) (60) (125)

Underlying profit before taxation 102 5 (13) 94Restructuring (1) (3) (3) (7)

Statutory profit/(loss) before taxation 101 2 (16) 87




$million

ASEAN &South Asia

$million

Africa &Middle East

$millionTotal

$million

Operating income 264 242 154 660Operating expenses (193) (144) (90) (427)

Operating profit before impairment losses and taxation 71 98 64 233Credit impairment (20) (13) (9) (42)Other impairment (3) – – (3)Underlying profit before taxation 48 85 55 188Restructuring (3) (2) (1) (6)Statutory profit/(loss) before taxation 45 83 54 182


21


Corporate & Institutional BankingServing around 5,300 large corporations, governments, banks and investors

Strategic priorities

• Deliver sustainable growth for clients by understanding their agendas, providing trusted advice, andstrengthening leadership in flow business

• Manage our balance sheet to grow income and returns by driving balance sheet velocity, improving fundingquality and maintaining strengthened risk controls

• Improve our efficiency, innovate and digitise to enhance the client experience

Progress

• Completed on-boarding of over 100 ‘New 90’ OECD clients, and delivered strong growth from the nextgeneration of ‘Next 100’ clients

• Improved balance sheet quality, with investment-grade clients now representing 65 per cent of customerloans and advances (2017: 57 per cent) and high quality operating account balances improving to 49 per centof Transaction Banking customer balances (2017: 48 per cent)

• Proportion of low returning client risk-weighted assets improved from 16.8 per cent in 2017 to 16.5 per cent

• Strong collaboration with Retail Banking continues with Employee Banking accounts from our clients up by75,000

Performance highlights

• Underlying profit before taxation of $1,093 million was up 69 per cent primarily driven by higher income andlower impairment, partially offset by higher operating expenses

• Underlying income of $3,451 million was up 7 per cent primarily driven by growth in Cash Management andFinancial Markets income which partially offset margin compression in Corporate Finance and Trade Finance

• Strong balance sheet momentum with loans and advances to customers and customer accounts growing by14 per cent

• RoE has improved from 4.1 to 6.9 per cent

22


Retail BankingServing over nine million individuals and small businesses


• Continue to focus on affluent and emerging affluent clients and their wealth needs in core cities and capturethe significant rise of the middle class in our markets

• Continue to build on our client ecosystem and alliances initiatives

• Improve our clients’ experience through an enhanced end-to-end digital offering, with intuitive platforms,best-in-class products and service responding to the change in digital habits of clients in our markets

Progress

• Increased the share of income from Priority clients from 45 per cent in 2017 to 47 per cent as a result ofstrong Wealth Management and Deposit income growth and increasing client numbers

• Launched the first digital-only bank in Côte d’Ivoire with a plan to roll out across other markets in the Africa &Middle East region

• Launched real time on-boarding in India, enabling straight-through current and savings account opening anda significantly improved customer experience

• There has been a further improvement in digital adoption, with 47 per cent of clients now actively using onlineor mobile banking compared to 45 per cent in 2017


• Underlying profit before taxation of $617 million was up 23 per cent with income growth and lower loanimpairment offset by increased expenses

• Underlying income of $2,620 million was up 9 per cent with growth of 11 per cent in Greater China & NorthAsia, and 12 per cent in ASEAN & South Asia, partially offsetting a 1 per cent decline in Africa & Middle East

• Strong momentum from Wealth Management and Deposits drove the improved income performance, morethan offsetting continued margin compression across asset products

• RoE improved from 10.8 to 13.0 per cent from consistent income growth in focus areas such as Priorityclients, Wealth Management and Deposits and continued low levels of loan impairment

23


Commercial BankingSupporting over 40,000 local corporations and medium-sized enterprises


• Drive quality sustainable growth by deepening relationships with our existing clients and attracting newclients that are aligned with our strategy, with a focus on rapidly growing and internationalising companies inour footprint

• Improve client experience, through investing in frontline training, tools and analytics

• Continue to enhance credit risk management and monitoring and maintain a high bar on operational risk

Progress

• On-boarded over 2,800 new clients, of which over 20 per cent came from our clients’ international anddomestic networks of buyers and suppliers

• Continued strengthening the foundations in credit risk management and improving asset quality. However,gross loan impairment remains elevated, partially offset by recoveries

• Straight2Bank utilisation increased by 10 per cent with 57 per cent of active Commercial Banking clientsusing the capability, up from 52 per cent in 20171


• Underlying profit before taxation of $140 million was down 26 per cent impacted by loan impairments mainlyin Africa & Middle East, partially offset by higher income in Greater China & North Asia

• Underlying income of $706 million was up 7 per cent with broad-based growth from Transaction Banking,Financial Markets and Corporate Finance. Income was up 12 per cent in Greater China & North Asia, and up9 per cent in ASEAN & South Asia, partially offsetting 4 per cent decline in Africa & Middle East

• Customer loans and advances grew by 7 per cent and customer accounts grew by 2 per cent

• RoE from Commercial Banking declined from 5.4 to 3.9 per cent largely due to higher loan impairments

24


Private BankingHelping over 8,000 high-net-worth individuals manage, preserve and grow their wealth


• Instil a culture of excellence by improving the expertise and enhancing the skills of senior relationshipmanagement teams

• Improve our clients’ experience by enhancing our advisory proposition and reducing the turnaround time ofthe investment process

• Balance growth and controls by simplifying the business model through implementation of a rigorouscontrols enhancement plan

Progress

• Continued to strengthen our relationship management team by adding 15 senior frontline hires

• Leveraged our new open architecture platforms like Equity Structured Products and Fixed Income, andsimplified processes to reduce client transaction time

• Targeted marketing of our investment philosophy and advisory capabilities to continue shift towards clientswith more than $5 million in assets under management


• Underlying loss before taxation of $5 million against a loss of $1 million in prior period, with income growthoffset by higher expenses

• Underlying income of $271 million was up 12 per cent, with Wealth Management and Retail Products up 18per cent and 3 per cent respectively

• Assets under management increased $5 billion or 8 per cent driven by positive market movements, and $1.6billion of net new money

• RoE decreased from (0.2) to (0.8) per cent

25

Standard Chartered PLC - Regional reviews

Analysis of underlying performance by region6 months ended 30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million

Operating income 3,097 2,073 1,376 870 233 7,649Operating expenses (1,903) (1,360) (919) (736) (199) (5,117)

Operating profit before impairment lossesand taxation 1,194 713 457 134 34 2,532Credit impairment (17) (138) (70) (68) – (293)Other impairment (44) 7 – 17 (31) (51)Profit from associates and joint ventures 156 7 – 3 2 168

Underlying profit before taxation 1,289 589 387 86 5 2,356Restructuring (26) 88 (41) (5) (95) (79)Gains arising on repurchase of senior andsubordinated liabilities – – – 3 66 69

Statutory profit/(loss) before taxation 1,263 677 346 84 (24) 2,346

Net interest margin 1.5% 2.0% 3.1% 0.4% 1.6%Total assets 268,294 147,017 58,343 208,599 12,621 694,874

Of which: loans and advances to customers 132,679 82,078 30,967 50,995 – 296,719Total liabilities 235,214 126,815 38,493 210,002 32,862 643,386

Of which: customer accounts 190,305 95,228 31,540 117,941 – 435,014Risk-weighted assets (unaudited) 83,456 95,876 53,755 41,193 (2,413) 271,867



$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 903 465 445 65 (162) 1,716Credit impairment (65) (338) (171) (44) 1 (617)Other impairment (27) (9) (1) (16) (32) (85)Profit/(loss) from associates and joint ventures 106 (26) – – (3) 77Underlying profit/(loss) before taxation 917 92 273 5 (196) 1,091Restructuring 45 (114) (26) (10) (83) (188)Net gains on businesses disposed/held for sale – 19 – – 59 78Goodwill impairment – – – – (320) (320)Statutory profit/(loss) before taxation 962 (3) 247 (5) (540) 661Net interest margins 1.4% 1.9% 3.3% 0.5% 1.6%Total assets 257,692 148,467 59,166 185,345 12,831 663,501


Of which: customer accounts 186,517 95,310 31,797 98,100 – 411,724Risk-weighted assets (unaudited) 84,593 96,733 56,437 44,735 (2,750) 279,748

26




$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 1,032 714 500 129 78 2,453Credit impairment (76) (315) (129) (63) – (583)Other impairment (54) (3) (2) – (25) (84)Profit from associates and joint ventures 123 4 – – 6 133Underlying profit before taxation 1,025 400 369 66 59 1,919Restructuring (10) (47) (7) (15) (86) (165)


Net interest margins 1.3% 1.9% 3.4% 0.5% 1.6%Total assets 249,672 149,173 56,296 191,220 11,277 657,638


Of which: customer accounts 173,866 93,189 30,944 100,339 – 398,338Risk-weighted assets (unaudited) 80,320 96,703 56,604 40,365 171 274,163

27


Greater China & North Asia

Serving clients in China, Hong Kong, Korea, Japan, Taiwan and Macau. The Group’s largest region by income


• Leverage our network strength to serve the inbound and outbound cross-border trade and investment needsof our clients

• Capture opportunities arising from China’s opening, including renminbi, Belt and Road Initiative, onshorecapital markets and mainland wealth, as well as in digital capabilities

• Strengthen market position in Hong Kong, and improve Retail Banking performance in China and Korea

Progress

• We have been active in the opening of China’s capital markets, helping overseas investors do businessthrough channels such as Bond Connect, Stock Connect and the Qualified Domestic Institutional Investorinitiative

• Good progress in Retail Banking in Hong Kong. We added more than 18,000 new Priority clients during theyear and increasing our active qualified Priority clients by 14 per cent. In June we announced our intent toapply for a virtual bank licence in Hong Kong

• We have delivered a modest profit in Retail Banking Korea and refreshed the strategic agenda in RetailBanking China where performance remained broadly flat


• Underlying profit before taxation of $1,289 million was 26 per cent higher with income growth and lower loanimpairment partially offset by increased expenses

• Underlying income of $3,097 million was 11 per cent higher, with broad-based growth across all markets andclient segments particularly in Hong Kong and China

• Strong balance sheet momentum was sustained with loans and advances to customers up 10 per cent andcustomer accounts up 9 per cent

28


ASEAN & South Asia

Our largest markets in ASEAN & South Asia by income are Singapore and India. We are active in all 10 ASEANcountries


• Optimise geographic portfolio by selectively reshaping sub-scale unprofitable markets and prioritising largeror more profitable markets

• Shift the income mix towards ‘asset-light’ businesses such as network and flow opportunities in Corporate &Institutional Banking and Commercial Banking; and towards Wealth Management and Priority clients in RetailBanking

• Deploy differentiating digital capabilities in key markets to improve client experience and productivity

Progress

• Broad-based income growth from portfolio reshaping in most markets, with double-digit growth in sixmarkets

• Good progress on improving business mix, with cash liabilities growing by 6 per cent and WealthManagement income and Global Subsidiaries income up 14 per cent each. In addition, we added around5,000 new Priority clients during the year

• Rolled out several market-leading digital capabilities including real-time onboarding in India and automatedindividual client due diligence in Singapore


• Underlying profit before taxation of $589 million grew 47 per cent driven by lower impairments and incomegrowth which was offset by continued investment in our strategic and regulatory agenda

• Underlying income of $2,073 million was up 6 per cent driven by higher income across all segments and ineight out of twelve markets

• Client activity was positive with 6 per cent growth in loans and advances to customers and 2 per cent growthin customer accounts. Risk-weighted assets declined by 1 per cent from improved portfolio quality

29


Africa & Middle EastPresent in 25 markets, of which the most sizeable by income are the UAE, Nigeria, Kenya and Pakistan


• De-risk and improve the quality of income and maintain a stable platform for sustainable growth

• Build income momentum in Corporate & Institutional Banking by providing best-in-class structuring andfinancing solutions and driving origination through client initiatives

• Continue investing in market-leading digitisation initiatives in Retail Banking to protect and grow market sharein core markets; continue with retail transformation to recalibrate our network and streamline structures

Progress

• Successfully launched digital-only bank in Côte d’lvoire. On track to deliver digital solutions across morecountries in Africa during 2018

• Improved risk profile through tighter underwriting standards, de-risking and higher coverage ratios leading tolower loan impairment levels


• Underlying profit before taxation of $387 million grew 5 per cent driven by a reduction in loan impairment

• Given the economic challenges in the region, underlying income of $1,376 million was down 1 per cent.Middle East, North Africa and Pakistan delivered flat income while Africa was down 2 per cent

• Good performance in Transaction Banking and Wealth Management was offset by margin compression inCorporate Finance and Retail Products

• Loans and advances to customers were up 5 per cent and customer accounts grew 2 per cent

30


Europe & AmericasCentred in London and New York with a presence across both continents. The region is a major income origination enginefor the Group’s Corporate & Institutional Banking business and booking centre for Private Banking


• Continue to attract new international corporate and financial institutional clients and deepen relationships withexisting and new clients by banking them across more markets in our network

• Enhance capital efficiency, maintain strong risk oversight and further improve the quality of our funding base

• Grow our Private Banking franchise and assets under management in London and Jersey

Progress

• Good progress in improving the share of business from targeted multinational corporate clients, with incomeup 114 per cent and 14 per cent from ‘New 90’ OECD and ‘Next 100’ client initiatives respectively. Wecontinue to diversify and selectively expand our client base in the region

• Focused on sustainably delivering higher returns through improved quality of income combined withrisk-weighted assets optimisation. We continue to improve the quality of our funding base in London andNew York and our network markets by increasing the proportion of operating account liabilities relative to ourbalance sheet size

• Broad-based growth across the region with a number of markets growing income at a double-digit rate. Weare setting up our new subsidiary in Frankfurt to seamlessly serve European client base


• Underlying profit before taxation of $86 million up 30 per cent from income growth and lower impairments,offset by an increase in expenses as we invest in people, platforms and processes

• Underlying income of $870 million was up 8 per cent driven by strong income in Transaction Banking partiallyoffset by continued subdued Financial Markets performance, particularly in Foreign Exchange. Incomegenerated by our clients booked elsewhere in the network grew by 12 per cent

• Private and Retail Banking income grew 15 per cent and 16 per cent respectively

• Loans and advances to customers were up 23 per cent and customer accounts rose 18 per cent

31

Standard Chartered PLC - Group Chief Risk Officer’s review

Group Chief Risk Officer’s review

Continuing to build on positive momentum

We are committed to growing a strong and sustainable business, and in the first six months of 2018 we continued tobuild on the progress made last year. We have further strengthened the Group’s ability to manage risk whilecontinuing to provide an effective service to our clients. Credit impairment and asset quality have sustainedimprovements seen in 2017 and our portfolio remains well diversified across client segments, geographies, andindustry sectors. We have implemented our revised Enterprise Risk Management Framework, elevating Compliance,Conduct, Financial Crime and Information and Cyber Security to principal risk types. We have also formalised a riskidentification process and a risk inventory to assess principal risks, as well as identify new and emerging risks anduncertainties. These changes help to articulate the risk landscape, enabling us to embed a healthy risk culture acrossthe Group.

Proactively managing emerging geopolitical and environmental risks is key to the execution of our strategy. Thelaunch of our new Sustainability Philosophy in May 2018 provides a stronger framework through which we can betterpromote economic and social development in a manner consistent with our values. We are translating these wordsinto action, for example by restricting our services to clients in the palm oil industry that do not subscribe toestablished environmental standards. By recognising that we have responsibilities beyond financial activities and byinstilling the right behaviours into our daily activities, we not only mitigate risks in our business but also set an examplefor investors and clients alike.

More information about the Group’s Sustainability philosophy can be found at sc.com/en/sustainability/philosophy

Our key risk priorities

Effective risk and compliance functions are an essential part of the Group’s strategy to deliver strong and sustainablegrowth. Through a comprehensive risk appetite, we manage a wide range of existing risks and continue to scan thehorizon to anticipate new threats. Below are our key priorities for 2018:

Strengthen the Group’s risk culture – Embedding a healthy risk culture remains one of the Group’s key priorities. Itunderpins an enterprise-level ability to identify and assess, openly discuss, and take prompt action regarding currentand future risks. The revised Enterprise Risk Management Framework sets out the guiding principles for thebehaviours expected from our people when managing risks and enables us to have integrated and holistic riskconversations covering all our principal risks. We are also implementing changes to assess strategic initiatives andgrowth opportunities from both the financial and non-financial risk perspective. In addition, our enhanced approach toeffectiveness reviews facilitates challenge, learning from self-identified issues or weaknesses, and makingimprovements that are lasting and sustainable

Manage and improve information and cyber security – We are expanding our capability in this area and enhancingour operating models to manage this risk better. A new risk type framework was approved to prioritise mitigation andgovernance activities. We are making further improvements through enhanced awareness campaigns and are activeparticipants in external partnerships including the UK Cyber Defence Alliance. These combined efforts will strengthenour defences and aid our efforts to keep pace with evolving cyber threats

Manage financial crime risks – We have continued to enhance our controls, systems and processes, and have madegood progress building an effective and sustainable financial crime programme. We passed a number of importantmilestones in the last six months, such as the launch of a new Mantas transaction monitoring platform in the US andthe roll-out of a proprietary client risk assessment covering Corporate & Institutional and Commercial Banking. We areinvolved in public-private information sharing partnerships in the UK, US, Singapore and Hong Kong, as well aspursuing innovation in financial crime compliance by partnering with RegTech firms in the areas of surveillance andinvestigations. We are continuing our ‘De-risking through education’ initiative for correspondent banking andnon-governmental organisation clients helping them to enhance their own controls. This collaborative approachfacilitates the continued safe provision of services that are vital to the world economy

More information about the Group’s commitment to fighting financial crime can be found atsc.com/fightingfinancialcrime

32


Strengthen our conduct environment – We are committed to being a force for good, and central to this ethos is ourconduct. The Group’s Code of Conduct sets the standards for individual behaviour and in 2018 we added Conduct toour principal risk types. Our framework defines and identifies good conduct and illustrates how the different elementsof conduct – such as the fair treatment of clients, preventing financial crime and responding to environmental andsocial risks – all fit together, embedding an integrated approach to ownership and accountability for conduct riskmanagement. While incidents cannot be entirely avoided, we have no appetite for breaches of laws or regulations andhave made it a priority in 2018 to review, refine and further strengthen our conduct environment. We expect nothingless than the highest standard at all levels, and where concerns are raised we undertake thorough and fairinvestigations which allow us to make swift and clear decisions

More information on our Group Code of Conduct can be found at sc.com/codeofconduct

Enhance our compliance infrastructure – In 2018 we established a multi-year programme to review and enhance our

existing structures and processes to ensure we deliver efficiently and effectively across our markets. Areas of focusinclude: using technology to support issue management and regulatory relationship management, and enable a moredata-driven risk management approach extending across the second and third lines of defence; commencing theroll-out of an enhanced learning and development programme for our compliance officers to set standards andexpectations, ensure we are getting the best from our people, and encourage independent thought and challenge;developing a new surveillance hub in Global Business Services Kuala Lumpur; and developing tools to help ourpeople assess compliance risks arising from new technologies or solutions such as application programminginterfaces or cloud computing

Improve our efficiency and effectiveness – The Group has continued to invest in improvements to infrastructure forexposure management, data quality and stress testing. Further enhancements are planned for operational riskmanagement, reporting and data analytics infrastructure. We continue to streamline and simplify our processes toserve clients better and drive internal efficiencies

Our risk profile and performance

In 2018 we have continued to improve our portfolios through our focus on high quality origination within a moregranular risk appetite. The Group’s client exposures remain predominantly short tenor, and our portfolio remains welldiversified across client segments, geographies and industry sectors. Our capital and liquidity positions remain strong.While no new areas of stress have emerged, we remain vigilant in light of continued geopolitical uncertainty.

IFRS 9 became effective from 1 January 2018 and the Group has not restated comparative information. Accordingly,amounts prior to 1 January 2018 have been prepared and disclosed on an IAS 39 basis. This primarily impacts creditimpairment, which is determined using an expected credit loss approach under IFRS 9 compared with an incurredloss approach under IAS 39.

Credit impairment in the Group’s ongoing book was $293 million in the first half of 2018. This was 50 per cent lowerthan the equivalent period last year (H2 2017: $617 million; H1 2017: $583 million), with reductions seen in Corporate& Institutional Banking and Retail Banking. Including the restructuring charge, gross credit impairment is 67 per centlower than in the first half of 2017 at $214 million (H2 2017: $707 million, H1 2017: $655 million).

Credit impairment6 months ended

30.06.18$million

(IFRS 9)1


(IAS 39)2


(IAS 39)2

Corporate & Institutional Banking 673 288 369Commercial Banking 106 126 42Private Banking 1 1 –Retail Banking 119 202 172Total ongoing business 293 617 583

Restructuring charge (including liquidation portfolio) (79) 90 72

1 Credit impairment under IFRS 9 covers a broader asset base than loan impairment under IAS 39, effective from 1 January 20182 2017 data is prepared and disclosed on an IAS 39 basis3 Credit impairment recovery of $14 million in Central & Other items is included in Corporate & Institutional Banking

The credit quality of the corporate portfolio has continued to improve. The percentage of exposure to investmentgrade clients within the total corporate book increased to 61 per cent (31 December 2017: 57 per cent) as wecontinued to focus on higher quality origination. Exposures in our early alerts portfolio reduced to $6.9 billion (31December 2017: $8.7 billion) mainly due to exposures being regularised, as well as active mitigating actions such asexposure reduction.

33


Overall gross credit-impaired (stage 3) loans for the Group have decreased to $7.7 billion (1 January 2018: $8.8 billion)with large reductions observed in the liquidation portfolio as we continued to exit these exposures. Gross stage 3loans in the ongoing business have decreased to $6.2 billion (1 January 2018: $6.5 billion); driven by repayments, debtsales and write-offs in Corporate & Institutional Banking. Corporate & Institutional Banking also saw lower inflows intostage 3, at around 46 per cent of the levels seen in previous periods (H1 2018: $535 million; H2 2017: $1,150 million;H1 2017: $1,153 million) as historically high inflows in India and in the Oil and Gas sector did not repeat. CommercialBanking saw higher inflows (H1 2018: $402 million; H2 2017: $268 million; H1 2017: $192 million) mainly driven byexposures in Greater China & North Asia and Africa & Middle East, with no specific industry concentration.

We continue to focus on early identification of emerging risks across all of our portfolios so that we can manage anyareas of weakness on a proactive basis. We also perform regular reviews and stress tests of our portfolio to helpmitigate any risks that might arise.

The cover ratio in the total book reduced to 57 per cent in the first half of 2018 (1 January 2018: 60 per cent), driven bywrite-offs and settlements in the liquidation portfolio, and including collateral decreased to 79 per cent (1 January2018: 81 per cent).

The Group maintains a strong liquidity position, with the liquidity coverage ratio higher at 151 per cent from 146 percent at the end of 2017, driven by an increase in our liquid asset position. Loans and deposits grew, with ouradvances-to-deposits ratio decreasing slightly to 68 per cent (H2 2017: 69 per cent). We remain a net provider ofliquidity to the interbank markets and our customer deposit base is diversified by type and maturity. We have asubstantial portfolio of marketable securities which can be realised in the event of a liquidity stress.

Average Group VaR in the first half of 2018 was 19 per cent lower at $20.4 million (H2 2017: $25.1 million), primarilydriven by a reduction in the duration of the Treasury Markets portfolio. Trading activities remain primarily client-driven.

Further details of the risk performance for the first six months of 2018 are set out in the Risk profile section.

Key indicators30.06.18(IFRS 9)

01.01.18(IFRS 9)

31.12.17(IAS 39)

30.06.17(IAS 39)

Group total businessStage 3 loans, credit-impaired (2018)1/ non-performing loans (2017) ($ billion) 7.7 8.8 8.7 9.9

Group ongoing businessStage 1 loans ($ billion) 235.1 228.5Stage 2 loans ($ billion) 21.8 20.6Stage 3 loans, credit-impaired (2018)1/ non-performing loans (2017) ($ billion) 6.2 6.5 6.5 6.3Cover ratio 53% 56% 56%2 56%2

Cover ratio (including collateral) 76% 78% 79% 73%Corporate & Institutional Banking and Commercial Banking3

Investment grade corporate exposures as a percentage of totalcorporate exposures 61% 57% 54%Loans and advances maturing in one year or less as a percentage of total loansand advances to customers 71% 70% 70%Early alert portfolio ($ billion) 6.9 8.7 10.4Credit grade 12 ($ billion) 1.0 1.5 1.3Aggregate top 20 corporate exposures as a percentage of Tier 1 capital 53% 50% 56%Collateralisation of sub-investment grade exposures maturing in more than1 year 55% 55% 56%Retail Banking3

Loan-to-value ratio of retail mortgages 45% 47% 48%

1 Stage 3 loans under IFRS 9 cover a broader asset base than the Group’s definition of NPL2 2017 cover ratios rebased to exclude portfolio impairment provisions to align to IFRS 9 (IAS39: 63 per cent on 31.12.17; 67 per cent on 30.06.17)3 These metrics are not impacted by the switch to IFRS 9, hence data as at 1 January 2018 is not needed for comparative purposes

34


Our risk management approach

We have continued to build out the Enterprise Risk Management function allowing the Group to identify and managerisks holistically, as well as strengthening the Group’s capabilities to understand, articulate and control the nature andlevel of risks we take while still effectively serving our clients.

The revised Enterprise Risk Management Framework approved in December 2017 sets out a refreshed risk cultureand a clear control framework, with sharper delineation of responsibilities between the three lines of defence, and it isbeing adopted by branches and subsidiaries. In addition, a Group-wide e-learning programme has been launched tosupport awareness and understanding of the key features of the Framework across all levels of the organisation.

Distinct risk type frameworks have been developed for our ten principal risk types, and these are being communicatedand rolled out throughout the organisation. The roll out will include suitable training plans tailored to teams andindividuals as required. As at July 2018 all risk type frameworks have been approved.

We are also working on developing the links between our strategy, risk appetite and stress testing in order to betterintegrate risk considerations into strategic decision-making.

Principal risks

Principal risks are those risks that are inherent in our strategy and our business model. These are formally defined inour Enterprise Risk Management Framework which provides a structure for monitoring and control of these risksthrough the Board-approved risk appetite. The Group will not compromise adherence to its risk appetite in order topursue revenue growth or higher returns. The table below provides an overview of the Group’s principal risks and howthese are managed. Further details on these can be found in our 2017 Annual Report.

Principal risk types How these are managed

Credit risk The Group manages its credit exposures following the principle of diversification across products, geographies, clientsegments and industry sectors

Country risk The Group manages its country cross-border exposures following the principle of diversification across geographiesand controls business activities in line with the level of jurisdiction risk

Market risk1 The Group controls its trading portfolio and activities to ensure that market risk losses (financial or reputational) do notcause material damage to the Group’s franchise

Capital and liquidity risk The Group maintains a strong capital position, including the maintenance of management buffers sufficient to supportits strategic aims, and holds an adequate buffer of high-quality liquid assets to survive extreme but plausible liquiditystress scenarios for at least 60 days without recourse to extraordinary central bank support

Operational risk The Group controls operational risks to ensure that operational losses (financial or reputational), including any related toconduct of business matters, do not cause material damage to the Group’s franchise

Reputational risk The Group aims to protect the franchise from material damage to its reputation by ensuring that any business activity issatisfactorily assessed and managed by the appropriate level of management and governance oversight

Compliance risk The Group has no appetite for breaches in laws and regulations; while recognising that regulatory non-compliancecannot be entirely avoided, the Group strives to reduce this to an absolute minimum

Conduct risk The Group strives to maintain the standards in our Code of Conduct and outcomes of our Conduct Framework, bycontinuously demonstrating that we “Do The Right Thing” in the way we do business

Information andcyber security risk

The Group seeks to avoid risk and uncertainty for our critical information assets and systems and has a low appetite formaterial incidents affecting these or the wider operations and reputation of the bank

Financial crime risk The Group has no appetite for breaches in laws and regulations related to financial crime, recognising that whileincidents are unwanted, they cannot be entirely avoided

1 Effective from July 2018 Market risk is now a sub-type under ‘Traded risk’, which also encompasses Counterparty credit risk. A new risk type framework has been approved andfurther details will be provided in the 2018 Annual Report

35


Our principal uncertainties

Principal uncertainties refer to unpredictable and uncontrollable outcomes from certain events and circumstanceswhich may have the potential to impact our business materially.

As part of our continual risk identification process, we have updated our Group principal uncertainties from thosedisclosed in the 2017 Annual Report. The table below summarises our current list of principal uncertainties outliningrisk trend changes in relation to 2017, the reasons for the changes and the mitigating actions we are taking.

Principal uncertaintiesRisk trend sinceDecember 20171 Key risk trend drivers How these are mitigated/next steps

Geopolitical events, inparticular: increase in tradeprotectionism driven bynationalist agenda, Koreanpeninsula and Middle Eastgeopolitical tensions, andpost-Brexit implications

There are increased concerns on the Middle Eastgeopolitical situation following the decision by theUS President to exit the Iran Nuclear Deal and tomove the US embassy from Tel Aviv to Jerusalem.In addition, there are increased concerns on globaltrade implications following a first wave ofmeasures taken by China, the US and the EU ontrade tariffs

• We monitor and assess geopolitical events andtake action as appropriate to ensure weminimise the impact to the Group and ourclients

• We conduct stress tests and portfolio reviewsat a Group, country and business level toassess the impact of extreme but plausiblegeopolitical events

Macroeconomic conditions,in particular: moderation ofgrowthin key footprint markets ledby China and sharp interestrate rises and asset pricecorrections

The risk remains at similar levels as at theend of 2017

• We monitor economic trends and conductstress tests and portfolio reviews at a Group,country and business level to assess theimpact of extreme but plausible events

• We monitor on a centralised basis contractualand behavioural interest rate risk exposures,and manage these within a clearly defined riskmanagement framework and risk appetite

Climate-related transitionrisks and physical risks2

The risk remains at similar levels as at the end of2017

• We have developed an approach for assessingenergy utilities clients’ power generation assetsagainst a range of physical and transition risks,under multiple climate scenarios and a range oftime horizons which will be implemented by theend of 2018. We are considering how weextend this to other sectors in 2018

• We have made a public commitment to fundand facilitate $4 billion towards cleantechnology between 2016 and 2020

Regulatory reviewsand investigations,legal proceedings3


• We have invested in enhancing systems andcontrols, and implementing remediationprogrammes (where relevant)

• We are cooperating with all relevant ongoingreviews, requests for information andinvestigations

Regulatory changes


• We monitor regulatory initiatives across ourfootprint to identify any potential impact andchange to our business model

• We establish specific regulatory programmesto ensure effective and efficient implementationof changes required by new, or changes inexisting, regulations

New technologies(i.e. blockchain andartificial intelligence) anddigitisation implications(including data risks)


• We monitor developments in the technologyspace which affect the banking sector

• We have set up SC Ventures to help promoteinnovation across the Group

• We have existing governance and controlframeworks in place for the deployment of newtechnology services and remain vigilantregarding legal and regulatory developments inrespect of the usage of new technologies andrelated data risks. In addition, we are building aframework to ensure fairness, ethics,accountability and transparency in the Group’suse of artificial intelligence

1 The risk trend refers to the overall risk score trend which is a combination of potential impact, likelihood and velocity of change2 Physical risks refer to the risk of increasingly extreme weather events. Transition risks refer to the risk of changes to market dynamics due to governments’ response to

climate change3 Further details on current material claims and proceedings are set out in note 19 of the Notes to the financial statements

36


Conclusion

The Group has carried its momentum of positive change into the first half of 2018. Through disciplined application ofour refreshed risk appetite, we can focus on building an efficient, resilient bank that not only supports our clientsfinancially, but also practises behaviours that benefit society as a whole. The financial services industry continues toevolve, and we intend to remain at the forefront of progress within it.

Mark SmithGroup Chief Risk Officer

31 July 2018

37

Standard Chartered PLC – Risk and Capital review

Conclusion

Risk Credit riskBasis of preparationCredit risk overviewIFRS 9 changes and methodologyMaximum exposure to credit riskAnalysis of financial instrument by stageCredit quality analysis• Credit quality by client segment• Credit quality by geographic region• Credit quality by industryMovement in expected credit impairments for loans and advances to customers and banksMovement in gross exposures for loans and advances to customers and banks

Problem credit management and provisioning

• Credit impairments

• Forborne and other modified loans

• Credit impaired (stage 3) loans by client segment

• Credit impaired (stage 3) loans by geographic region

• Movement of credit impaired (stage 3) provisions by client segment

Credit risk mitigation

• Collateral

• Collateral – Corporate and Institutional Banking and Commercial Banking

• Collateral – Retail Banking and Private Banking

Industry and retail products analysis by geographic region

IFRS 9 methodology

Country risk

Market risk

Market risk changes

Liquidity and funding risk

Liquidity and funding risk metrics

Encumbrance

Liquidity analysis of the Group’s balance sheet

Interest rate risk in the banking book

Operational risk

Operational risk profile

Other principal risksCapital Capital summary

• Capital ratio

• CRD IV capital base

• Movement in total capital

Risk weighted assets

UK leverage ratio

38

Standard Chartered PLC – Risk and Capital review

The following parts of the Risk review and Capital review form part of the financial statements and are reviewed byexternal auditors:

• From the start of the ‘Credit risk review’ section to the end of ‘Other principal risks’ in the same section excluding:

Risk section

Credit quality by geographic regionCredit quality by industryCredit-impaired (stage 3) loans by geographic regionIndustry and Retail Products analysis by geographic regionCountry riskMarket risk changes – risks not in VaRMarket risk changes – backtestingLiquidity coverage ratio (LCR)Stressed coverageNet stable funding ratio (NSFR)Liquidity pool

Encumbrance

Interest rate risk in the banking book

Operational riskOther principal risks

• From the start of ‘Capital Requirements Directive (CRD) IV Capital base’ to the end of ‘Movement in total capital’,excluding capital ratios and risk-weighted assets (RWA)

Disclosures noted as ‘unaudited’ are not within the scope of KPMG LLP’s review.

39

Standard Chartered PLC - Risk review

Credit risk

Basis of preparationUnless otherwise stated the balance sheet and income statement information presented within this section is basedon the Group’s management view. This is principally the location from which a client relationship is managed, whichmay differ from where it is financially booked and may be shared between businesses and/or regions. This viewreflects how the client segments and regions are managed internally.

Loans and advances to customers balances comprise the ongoing portfolio and liquidation portfolio in this sectionunless otherwise separately identified.

Loans and advances to customers and banks held at amortised cost in this Risk Review section include reverserepurchase agreement balance held at amortised cost, per Note 14 Reverse repurchase and repurchase agreementsincluding other similar secured lending and borrowing.

Credit risk overviewCredit risk is the potential for loss due to the failure of a counterparty to meet its obligations to pay the Group. Creditexposures arise from both the banking and trading books.

IFRS 9 changes and methodologyIFRS 9 came into effect on 1 January 2018.

A summary of the primary changes for the Group are provided below.

New impairment modelIFRS 9 introduces a new impairment model that requires the recognition of expected credit losses (ECL) rather thanincurred losses under IAS 39. This applies to all financial debt instruments held at amortised cost, fair value throughother comprehensive income (FVOCI), undrawn loan commitments and financial guarantees.

Staging of financial instrumentsFinancial instruments that are not already credit-impaired are originated into stage 1 and a 12-month expected creditloss provision is recognised.

Instruments will remain in stage 1 until they are repaid, unless they experience significant credit deterioration (stage 2)or they become credit-impaired (stage 3).

Instruments will transfer to stage 2 and a lifetime expected credit loss provision recognised when there has been asignificant change in the credit risk compared with what was expected at origination.

The framework used to determine a significant increase in credit risk is set out below.

Instruments are classified as stage 3 when they become credit-impaired.

40


Stage 3

• Credit-impaired

• Non-performing

Stage 2

• Lifetime expectedcredit loss

• Performing but significant increase in credit risk (SICR)

Stage 1

• 12-month expectedcredit loss

• Performing

The Group has not restated comparative information. Accordingly, amounts prior to 1 January 2018 are prepared anddisclosed on an IAS 39 basis. This primarily impacts the credit risk disclosures, where loan loss provisioning is deter-mined on an expected credit loss basis under IFRS 9 compared with an incurred credit loss basis under IAS 39.

Where relevant, the 1 January 2018 balance sheet has been used for comparative purposes. The Group’s initialestimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of theGroup’s expected loss models, the estimate of the opening credit impairment provisions has been revised down by$222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earningshas similarly decreased by $222 million to $(1,074) million.

A summary of the differences between IFRS 9 and IAS 39 is disclosed in the Notes to the financial statements.

41


IFRS 9 changes and methodologyThe accounting policies under IFRS 9 are set out in Note 7 Credit impairment and Note 12 Financial instruments. Theimpact upon adoption of IFRS 9 as at 1 January 2018 is set out in Note 27 Transition to IFRS 9 Financial Instruments.The main methodology principles and approach adopted by the bank are set out in the following table with crossreferences to other sections.

Title Description Supporting information

Approach todeterminingexpectedcredit losses

For material loan portfolios, the Group has adopted a statistical modelling fordetermining expected credit losses that makes extensive use of credit modelling.Where available, the Group has leveraged existing advanced Internal Ratings Based(IRB) regulatory models that have been used to determine regulatory expected loss.For portfolios that follow a standardised regulatory approach, the Group hasdeveloped new models where these portfolios are material.

Credit risk methodologyKey differences between regulatory IFRSexpected credit loss modelsDetermining lifetime expected credit lossfor revolving products

Incorporation offorward lookinginformation

The determination of expected credit loss includes various assumptions andjudgements in respect of forward looking macroeconomic information.

Incorporation of forward-lookinginformation and impact of non-linearityForecast of key macroeconomic variablesunderlying the expected credit losscalculation

Significant increasein credit risk (‘SICR’)

Expected credit loss for financial assets will transfer from a 12 month basis to alifetime basis when there is a significant increase in credit risk (SICR) relative to thatwhich was expected at the time of origination, or when the asset becomes creditimpaired. On transfer to a lifetime basis, the expected credit loss for those assets willreflect the impact of a default event expected to occur over the remaining lifetime ofthe instrument rather than just over the 12 months from the reporting date.SICR is assessed by comparing the risk of default of an exposure at the reportingdate with the risk of default at origination (after considering the passage of time).‘Significant’ does not mean statistically significant nor is it reflective of the extent ofthe impact on the Group’s financial statements. Whether a change in the risk ofdefault is significant or not is assessed using quantitative and qualitative criteria, theweight of which will depend on the type of product and counterparty.The Group uses a mix of quantitative and qualitative criteria to assess SICR.

Quantitative criteriaSignificant increase in credit risk thresholdsSpecific qualitative and quantitative criteriaper segment:Corporate & Institutional and CommercialBanking clientsRetail Banking clientsPrivate Banking clientsDebt securities

Assessment ofcredit-impairedfinancial assets

Credit-impaired financial assets comprise those assets that have experienced anobserved credit event and are in default. Default represents those assets that are atleast 90 days past due in respect of principal and interest payments and/or where theassets are otherwise considered unlikely to pay.Unlikely to pay factors include objective conditions such as bankruptcy, debtrestructuring, fraud or death. It also includes credit-related modifications ofcontractual cash flows due to significant financial difficulty (forbearance) where thebank has granted concessions that it would not ordinarily consider.

Retail Banking clientsCorporate & Institutional Banking clientsCommercial Banking and Private Bankingclients

Modified financialassets

Where the contractual terms of a financial instrument have been modified, and thisdoes not result in the instrument being derecognised, a modification gain or loss isrecognised in the income statement representing the difference between the originalcash flows and the modified cash flows, discounted at the effective interest rate. Themodification gain/loss is directly applied to the gross carrying amount of theinstrument.If the modification is credit related, such as forbearance or where the Group hasgranted concessions that it would not ordinarily consider, then it will be consideredcredit-impaired. Modifications that are not credit related will be subject to anassessment of whether the asset’s credit risk has increased significantly sinceorigination by comparing the remaining lifetime probability of default (PD) based onthe modified terms with the remaining lifetime PD based on the original contractualterms.

Forbearance and other modified loans

Transfers betweenstages

Assets will transfer from stage 3 to stage 2 when they are no longer considered to becredit-impaired. Assets will not be considered credit-impaired only if the customermakes payments such that they are paid to current in line with the original contractualterms. In addition:

• Loans that were subject to forbearance measures must remain current for12 months before they can be transferred to stage 2;

• Retail loans that were not subject to forbearance measures must remaincurrent for 180 days before they can be transferred to stage 2 or stage 1.

Assets may transfer to stage 1 if they are no longer considered to have experienced asignificant increase in credit risk. This will be immediate when the original PD basedtransfer criteria are no longer met (and as long as none of the other transfer criteriaapply). Where assets were transferred using other measures, the assets will onlytransfer back to stage 1 when the condition that caused the significant increase incredit risk no longer applies (and as long as none of the other transfer criteria apply).

Movement in loan exposures andexpected credit losses

Governance andapplication of expertcredit judgement inrespect of expectedcredit losses

The determination of expected credit losses requires a significant degree ofmanagement judgement which has impacted governance processes, with the outputof the expected credit models assessed by the IFRS 9 Impairment Committee.

Group Credit Model AssessmentCommitteeIFRS 9 Impairment Committee

42


Maximum exposure to credit riskThe table below presents the Group’s maximum exposure to credit risk for its on-balance sheet and off-balance sheetfinancial instruments as at 30 June 2018, before and after taking into account any collateral held or other credit riskmitigation.

For on-balance sheet instruments, the maximum exposure to credit risk is the carrying amount reported on thebalance sheet. For off-balance sheet instruments, the maximum exposure to credit risk generally represents thecontractual notional amounts.

The Group’s maximum exposure to credit risk is spread across its markets and is affected by the general economicconditions in the geographies in which it operates. The Group sets limits on the exposure to any counterparty, andcredit risk is spread over a variety of different personal, commercial and institutional customers.

The Group’s gross maximum exposure to credit risk has increased by $34.8 billion when compared with 1 January2018, mainly due to on-balance sheet exposure driven by growth in loans and advances, investment securities,expansion of the reverse repo business and other assets. Investment securities increased by $6.6 billion mainly due tohigher yield and concentration on investing in high-quality liquid assets for regulatory metrics. Increase in other assetsis driven by higher amount of short term unsettled trades at the end of H1 2018 relative to 2017 year end.

Maximum exposure to credit risk30.06.18 01.01.18

Maximumexposure

$million

Credit risk management

Net exposure$million

Maximumexposure

$million


Netexposure

$millionCollateral

$million

Masternetting

agreements$million

Collateral$million

Masternetting

agreements$million

On-balance sheetCash and balances at central banks 58,213 – – 58,213 58,864 – – 58,864Loans and advances to customers held at:1 258,810 250,848

Fair value through profit or loss 3,710 3,907Amortised cost 255,100 246,941

Loans and advances to banks held at:1 58,847 60,059


Total loans and advances to banksand customers 317,657 106,084 – 211,573 310,907 113,062 – 197,845Reverse repurchase agreements and othersecured lending6 64,421 64,421 – – 55,185 55,185 – –


Investment securities2 142,369 – – 142,369 135,814 – – 135,814

As per balance sheet 123,081 – – 123,081 115,813 – – 115,813Fair value through profit or loss 21,275 – – 21,275 22,350 – – 22,350Less: equity securities (1,987) – – (1,987) (2,349) – – (2,349)

Derivative financial instruments3 51,780 10,631 34,153 6,996 47,031 9,825 29,135 8,071Accrued income 2,082 – – 2,082 1,947 – – 1,947Assets held for sale 2 – – 2 2 – – 2Other assets4 34,441 – – 34,441 29,922 – – 29,922

Total balance sheet 670,965 181,136 34,153 455,676 639,672 178,072 29,135 432,465Off-balance sheetContingent liabilities 42,538 – – 42,538 43,521 – – 43,521Undrawn irrevocable standby facilities,credit lines and other commitments to lend5 68,222 – – 68,222 63,890 – – 63,890Documentary credits and short-termtrade-related transactions 4,021 – – 4,021 3,880 – – 3,880Total off-balance sheet 114,781 – – 114,781 111,291 – – 111,291

Total 785,746 181,136 34,153 570,457 750,963 178,072 29,135 543,756

1 An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section2 Equity shares are excluded as they are not subject to credit risk3 The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and

negative mark-to-market values of applicable derivative transactions4 Other assets include Hong Kong certificates of indebtedness, cash collateral, and acceptances, in addition to unsettled trades and other financial assets5 Excludes unconditionally cancellable facilities6 Collateral capped at maximum exposure (over-collateralised)

43


Maximum exposure to credit risk31.12.17 (IAS 39)

Maximumexposure

$million


Netexposure

$millionCollateral

$million

Masternetting

agreements$million

On-balance sheetCash and balances at central banks 58,864 – – 58,864Loans and advances to customers held at:1 251,625 –

Fair value through profit or loss 2,918Amortised cost 248,707

Loans and advances to banks held at:1 60,066

Fair value through profit or loss 2,572Amortised cost 57,494

Total loans and advances to banks and customers 311,691 113,060 – 198,631Reverse repurchase agreements and other secured lending6 55,187 55,187 – –

Fair value through profit or loss 912Amortised cost 54,275

Investment securities 135,842 – – 135,842

As per balance sheet 117,025 – – 117,025Fair value through profit or loss 21,162 – – 21,162Less: equity securities2 (2,345) – – (2,345)

Derivative financial instruments3 47,031 9,825 29,135 8,071Accrued income 1,947 – – 1,947Assets held for sale 2 – – 2Other assets4 29,922 – – 29,922

Total balance sheet 640,486 178,072 29,135 433,279Off-balance sheetContingent liabilities 43,521 – – 43,521Undrawn irrevocable standby facilities, credit lines and other commitmentsto lend5 63,890 – – 63,890Documentary credits and short-term trade-related transactions 3,880 – – 3,880Total off-balance sheet 111,291 – – 111,291

Total 751,777 178,072 29,135 544,570

1 An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section2 Equity shares are excluded as they are not subject to credit risk3 The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and

negative mark-to-market values of applicable derivative transactions4 Other assets include Hong Kong certificates of indebtedness, cash collateral and acceptances, in addition to unsettled trades and other financial assets5 Excludes unconditionally cancellable facilities6 Collateral capped at maximum exposure (over-collateralised)

44


Analysis of financial instrument by stage

This table shows financial instruments and off-balance sheet commitments by stage with total loss provision againsteach financial instrument class.

Total credit impairment provisions decreased by $1.0 billion in the first half of 2018, reflecting lower stage 3 provisionslargely due to write-offs within the Corporate & Institutional Banking portfolio.

30.06.18

Stage 1 Stage 2 Stage 3 Total

Grossbalance1

$million

Total creditimpairment

$million

Netcarrying

value$million

Grossbalance1

$million


$million

Netcarrying

value$million

Grossbalance1

$million


$million

Netcarrying

value$million

Grossbalance1

$million


$million

Netcarrying

value$million

Loans andadvances tocustomers(excludingFVTPL)2 235,063 (435) 234,628 21,844 (470) 21,374 7,728 (4,399) 3,329 264,635 (5,304) 259,331Loans andadvances tocustomers(FVTPL)3 37,388

Total loansand advances tocustomers 235,063 (435) 234,628 21,844 (470) 21,374 7,728 (4,399) 3,329 264,635 (5,304) 296,719

Loans andadvances tobanks (excludingFVTPL)2 62,448 (4) 62,444 1,712 (3) 1,709 – – – 64,160 (7) 64,153Loans andadvances tobanks (FVTPL)3 21,206

Total loansand advances tobanks 62,448 (4) 62,444 1,712 (3) 1,709 – – – 64,160 (7) 85,359

Debt securitiesand othereligible bills –amortised cost 6,451 (5) 6,446 431 (19) 412 216 (208) 8 7,098 (232) 6,866Debt securitiesand other eligiblebills – FVOCI4 109,550 (26) 6,411 (30) 4 – 115,965 (56)

Total debtsecuritiesand other eligiblebills 116,001 (31) 6,842 (49) 220 (208) 123,063 (288)

Undrawncommitments5 128,422 (45) 12,592 (68) – – 141,014 (113)Financialguarantees5 28,814 (7) 3,363 (64) 571 (87) 32,748 (158)

Total undrawncommitmentand financialguarantees 157,236 (52) 15,955 (132) 571 (87) 173,762 (271)

Total 570,748 (522) 46,353 (654) 8,519 (4,694) 625,620 (5,870)

1 Gross carrying amount for off-balance sheet refers to notional values2 Loans and advances include reverse repurchase agreements and other similar secured lending for $4,231 million under ‘Customers’ and for $8,550 million under ‘Banks’3 Loans and advances include reverse repurchase agreements and other similar secured lending for $33,678 million under ‘Customers’ and for $17,962 million under ‘Banks’4 These instruments are held at fair value on the balance sheet. The expected credit loss provision in respect of debt securities measured at FVOCI is held within reserves5 These are off-balance sheet instruments. Only the expected credit loss is recorded on balance sheet as a financial liability and therefore there is no ‘net carrying amount’. expected

credit loss provision on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separatelyidentified. Otherwise they will be reported against the drawn component

45


01.01.18


Grossbalance1

$million


$million

Netcarrying

value$million

Grossbalance1

$million


$million

Netcarrying

value$million

Grossbalance1

$million


$million

Netcarrying

value$million

Grossbalance1

$million


$million

Netcarrying

value$million

Loans andadvances tocustomers(excluding FVTPL)2 228,485 (472) 228,013 20,585 (576) 20,009 8,769 (5,282) 3,487 257,839 (6,330) 251,509Loans andadvances tocustomers (FVTPL)3 33,268

Total loansand advancesto customers 228,485 (472) 228,013 20,585 (576) 20,009 8,769 (5,282) 3,487 257,839 (6,330) 284,777

Loans andadvances to banks(excluding FVTPL)2 59,926 (6) 59,920 2,370 (2) 2,368 9 (4) 5 62,305 (12) 62,293Loans andadvances tobanks (FVTPL)3 19,022Total loansand advancesto banks 59,926 (6) 59,920 2,370 (2) 2,368 9 (4) 5 62,305 (12) 81,315

Debt securities andother eligible bills –amortised cost4 6,204 (3) 6,201 995 (16) 979 221 (213) 8 7,420 (232) 7,188Debt securities andother eligible bills –FVOCI5 101,104 (23) 7,307 (42) – – 108,411 (65)

Total debtsecurities and othereligible bills 107,308 (26) 8,302 (58) 221 (213) 115,831 (297)

Undrawncommitments6 147,007 (66) 15,240 (90) – – 162,247 (156)Financialguarantees6 24,391 (6) 4,795 (16) 199 (77) 29,385 (99)Total undrawncommitmentand financialguarantees 171,398 (72) 20,035 (106) 199 (77) 191,632 (255)

Total 567,117 (576) 51,292 (742) 9,198 (5,576) 627,607 (6,894)

1 Gross carrying amount for off-balance sheet refers to notional values2 Loans and advances include reverse repurchase agreements and other similar secured lending for $4,568 million under ‘Customers’ and for $5,099 million under ‘Banks’3 Loans and advances include reverse repurchase agreements and other similar secured lending for $29,361 million under ‘Customers’ and for $16,157 million under ‘Banks’4 Stage 3 Gross balance and Total credit impairment of debt securities and other eligible bills – amortised cost has increased by $208 million, with no impact on net carrying value.

The balances have been restated to present securities with zero carrying value previously classified as available for sale under IAS 39 on a gross basis as required under IFRS 95 These instruments are held at fair value on the balance sheet. The expected credit loss provision in respect of debt securities measured at FVOCI is held within reserves6 These are off-balance sheet instruments. Only the expected credit loss is recorded on balance sheet as a financial liability and therefore there is no ‘net carrying amount’. Expected

credit loss provisions on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separatelyidentified. Otherwise they will be reported against the drawn component

46


Credit quality analysis

Credit quality by client segmentFor Corporate and Institutional Banking and Commercial Banking portfolios, exposures are analysed by credit grade(CG), which plays a central role in the quality assessment and monitoring of risk. All loans are assigned a CG, which isreviewed periodically and amended in light of changes in the borrower’s circumstances or behaviour. CG 1 to 12 areassigned to stage 1 and stage 2 (performing) clients or accounts, while CG 13 and 14 are assigned to stage 3(non-performing or defaulted) clients. The mapping of credit quality is as follows:

Mapping of credit qualityThe Group uses the following internal risk mapping to determine the credit quality for loans.

Credit quality description

Corporate & Institutional Banking and Commercial Banking Private Banking Retail Banking

Default grademapping

S&P external ratingsequivalent Regulatory PD range Internal ratings Number of days past due

Strong Grades 1-5 AAA/AA+ toBB+/BBB-

0.000-0.425 Class I and Class IV Current loans (no pastdues nor impaired)

Satisfactory Grades 6-8 BB+ to BB-/B+ 0.426-2.350 Class II and Class III Loans past due till29 days

Grades 9-11 B+/B to B-/CCC 2.351-15.750

Higher Risk Grade 12 B-/CCC 15.751-50.000 GSAM managed Past due loans 30 daysand over till 90 days

The table overleaf sets out the gross loans and advances held at amortised cost, expected credit loss provisions andexpected credit loss coverage by business segment and stage.

Within Corporate & Institutional Banking, the proportion of stage 1 accounts rated as ‘Strong’ increased from 58 percent to 65 per cent due to the focus on investment grade origination. Stage 2 accounts fell $1.0 billion to $12.6 billion.Within this, early alert balances fell $1.3 billion and higher-risk accounts declined by $312 million to $816 million due tolower levels of inflows into this category.

For Retail Banking, the majority of the portfolio remains in the ‘Strong’ credit quality Stage 1 category (95 per cent oftotal Retail Banking portfolio). Stage 2 balances remain at 2.5 per cent of total Retail Banking loans and advances, ofwhich 60 per cent are ‘Strong’ credit quality. Stage 3 remains broadly stable compared to the beginning of the year.

Commercial Banking saw the proportion of stage 2 assets increasing from 14 per cent of total loans to 21 per cent.However, higher-risk stage 2 accounts fell by $102 million due to repayments and reduced inflows.

Expected credit loss coverage ratios have remained broadly in line with 1 January 2018, except for higher-risk stage 2accounts, which have fallen from 12 per cent to 9.3 per cent. The Group overall stage 3 cover ratio declined to 57 percent (1 January 2018: 60 per cent) reflecting a small number of write-offs from the Corporate & Institutional Bankingongoing business and liquidation portfolio.

47


By client segment

Amortised cost

30.06.18

Loans tobanks

$million

Loans to customers


Banking$million





$millionTotal

$million

Gross loansStage 1 62,448 92,313 98,504 21,455 13,035 9,756 235,063

– Strong 50,939 59,603 96,770 7,044 9,457 9,663 182,537– Satisfactory 11,509 32,710 1,734 14,411 3,578 93 52,526

Stage 2 1,712 12,618 2,573 6,231 422 – 21,844

– Strong 269 1,973 1,540 166 308 – 3,987– Satisfactory 1,431 9,829 524 5,844 10 – 16,207– Higher-risk 12 816 509 221 104 – 1,650

Of which (stage 2):– Less than 30 days past due – 929 524 295 10 – 1,758– More than 30 days past due – 69 509 92 4 – 674

Stage 3, credit-impaired financial assets - 4,686 800 2,030 212 – 7,728

Total1 64,160 109,617 101,877 29,716 13,669 9,756 264,635

Expected credit loss provisionsStage 1 (4) (58) (332) (38) (7) – (435)

– Strong (2) (22) (185) (22) (6) – (235)– Satisfactory (2) (36) (147) (16) (1) – (200)

Stage 2 (3) (243) (156) (70) (1) – (470)

– Strong (3) (12) (27) – (1) – (40)– Satisfactory – (144) (80) (53) – – (277)– Higher-risk – (87) (49) (17) – – (153)

Of which (stage 2):– Less than 30 days past due (1) (63) (80) (40) – – (183)– More than 30 days past due (2) (15) (49) – – – (64)

Stage 3, credit-impaired financial assets – (2,536) (372) (1,395) (96) – (4,399)

Total (7) (2,837) (860) (1,503) (104) – (5,304)

CoverageStage 1 0.0% 0.1% 0.3% 0.2% 0.1% – 0.2%

– Strong – 0.0% 0.2% 0.3% 0.1% – 0.1%– Satisfactory – 0.1% 8.5% 0.1% 0.0% – 0.4%

Stage 2 0.2% 1.9% 6.1% 1.1% 0.2% – 2.2%

– Strong 1.1% 0.6% 1.8% – 0.3% – 1.0%– Satisfactory – 1.5% 15.3% 0.9% – – 1.7%– Higher-risk – 10.7% 9.6% 7.7% – – 9.3%

Of which (stage 2):– Less than 30 days past due 0.0% 6.8% 15.3% 13.6% – – 10.4%– More than 30 days past due 0.0% 21.7% 9.6% – – – 9.5%

Stage 3, credit-impaired financial assets –% 54.1% 46.5% 68.7% 45.3% – 56.9%

Fair value through profit or loss

Performing 21,206 36,452 513 346 – – 37,311

– Strong 20,118 31,620 497 35 – – 32,152– Satisfactory 1,065 4,828 12 311 – – 5,151– Higher-risk 23 4 4 – – – 8

Impaired – 65 – 12 – – 77

Total2 21,206 36,517 513 358 – – 37,388

Net loans and advances 85,359 143,297 101,530 28,571 13,565 9,756 296,719

1 Loans and advances include reverse repurchase agreements and other similar secured lending for $4,231 million under ‘Customers’ and for $8,550 million under ‘Banks’2 Loans and advances include reverse repurchase agreements and other similar secured lending for $33,678 million under ‘Customers’ and for $17,962 million under ‘Banks’

48


Amortised cost

01.01.18

Loans tobanks

$million

Loans to customers


Banking$million





$millionTotal

$million

Gross loansStage 1 59,926 83,575 99,971 23,130 12,481 9,328 228,485

– Strong 50,820 48,638 98,721 5,573 8,527 9,240 170,699– Satisfactory 9,106 34,937 1,250 17,557 3,954 88 57,786

Stage 2 2,370 13,641 2,186 4,023 735 – 20,585

– Strong 1,940 4,400 1,432 394 693 – 6,919– Satisfactory 376 8,113 349 3,306 – – 11,768– Higher-risk 54 1,128 405 323 42 – 1,898

Of which (stage 2):– Less than 30 days past due 246 493 347 153 – – 993– More than 30 days past due 25 232 407 123 5 – 767

Stage 3, credit-impaired financial assets 9 5,788 818 1,956 207 – 8,769

Total1 62,305 103,004 102,975 29,109 13,423 9,328 257,839

Expected credit loss provisionsStage 1 (6) (65) (370) (25) (8) (4) (472)

– Strong (4) (12) (324) (5) (8) (4) (353)– Satisfactory (2) (53) (46) (20) – – (119)

Stage 2 (2) (326) (170) (79) (1) – (576)

– Strong (2) (14) (84) – (1) – (99)– Satisfactory – (165) (25) (59) – – (249)– Higher-risk – (147) (61) (20) – – (228)

Of which (stage 2):– Less than 30 days past due – (65) (24) (28) – – (117)– More than 30 days past due – (71) (61) (14) – – (146)

Stage 3, credit-impaired financial assets (4) (3,433) (389) (1,369) (91) – (5,282)

Total (12) (3,824) (929) (1,473) (100) (4) (6,330)

CoverageStage 1 0.0% 0.1% 0.4% 0.1% 0.1% 0.0% 0.2%

– Strong 0.0% 0.0% 0.3% 0.1% 0.1% 0.0% 0.2%– Satisfactory 0.0% 0.2% 3.7% 0.1% – – 0.2%

Stage 2 0.1% 2.4% 7.8% 2.0% 0.1% 0.0% 2.8%

– Strong 0.1% 0.3% 5.9% 0.0% 0.1% – 1.4%– Satisfactory – 2.0% 7.2% 1.8% – – 2.1%– Higher-risk – 13.0% 15.1% 6.2% – – 12.0%

Of which (stage 2):– Less than 30 days past due – 13.2% 6.9% 18.3% – – 11.8%– More than 30 days past due – 30.6% 15.0% 11.4% – – 19.0%

Stage 3, credit-impaired financial assets 44.4% 59.3% 47.6% 70.0% 44.0% 0.0% 60.2%

Fair value through profit or lossPerforming 19,022 32,209 539 457 – – 33,205

– Strong 16,199 22,647 539 100 – – 23,286– Satisfactory 2,823 9,555 – 357 – – 9,912– Higher-risk – 7 – – – – 7

Impaired – 59 – 4 – – 63

Total2 19,022 32,268 539 461 – – 33,268

Net loans and advances 81,315 131,448 102,585 28,097 13,323 9,324 284,777

1 Loans and advances include reverse repurchase agreements and other similar secured lending for $4,568 million under ‘Customers’ and for $5,099 million under ‘Banks’2 Loans and advances include reverse repurchase agreements and other similar secured lending for $29,361 million under ‘Customers’ and for $16,157 million under ‘Banks’

49


By client segment31.12.17 (IAS 39)

Loans tobanks1

$million

Loans to customers


Banking$million





$millionTotal1

$million

Performing loans

– Strong 68,958 75,672 100,687 6,072 9,220 9,253 200,904– Satisfactory 12,309 52,610 1,586 21,216 3,951 90 79,453– Higher-risk 54 1,128 405 323 42 – 1,898

81,321 129,410 102,678 27,611 13,213 9,343 282,255Impaired forborne loans, net of provisions – – 269 – – – 269Non-performing loans, net of provisions 5 2,484 274 596 140 – 3,494

Total loans 81,326 131,894 103,221 28,207 13,353 9,343 286,018Portfolio impairment provision (1) (156) (208) (99) (2) – (465)

Total net loans 81,325 131,738 103,013 28,108 13,351 9,343 285,553

The following table further analyses total loans included within the table above

Included in performing loansNeither past due nor impaired

– Strong 68,740 75,482 100,687 6,058 9,220 9,251 200,698– Satisfactory 12,255 51,846 – 20,831 3,866 90 76,633– Higher-risk 54 899 – 239 42 – 1,180

81,049 128,227 100,687 27,128 13,128 9,341 278,511Past due but not impaired

– Up to 30 days past due 247 951 1,586 360 69 – 2,966– 31-60 days past due 25 32 278 49 16 – 375– 61-90 days past due – 200 127 74 – 2 403

272 1,183 1,991 483 85 2 3,744

Total performing loans 81,321 129,410 102,678 27,611 13,213 9,343 282,255

Of which, forborne loans amounting to 2 480 84 31 – – 595

Included in non-performing loansPast due but not impaired

– 91-120 days past due – – 67 – – – 67– 121-150 days past due – – 56 – – – 56

– – 123 – – – 123Individually impaired loans, net of provisions 5 2,484 151 596 140 – 3,371

Total non-performing loans 5 2,484 274 596 140 – 3,494

Of the above, forborne loans 4 861 268 186 – – 1,315

The following table sets out loans held at fair value through profit and loss which are included within the table above

Neither past due nor impaired

– Strong 2,081 1,451 – 30 – – 1,481– Satisfactory 1,056 1,572 – 186 – – 1,758– Higher-risk – 7 – – – – 7

3,137 3,030 – 216 – – 3,246

Individually impaired loans – 19 – – – – 19

Total loans held at fair value through profit and loss 3,137 3,049 – 216 – – 3,265

1 Loans and advances include reverse repurchase agreements and other similar secured lending for $55,187 million

50


Credit quality by geographic region (unaudited)The following table sets out the credit quality for gross loans and advances to customers and banks, held atamortised cost, by geographic region and stage.

Loans and advances to customers30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Loans classified asStage 1 119,419 70,672 24,231 20,741 235,063Stage 2 6,761 7,752 5,145 2,186 21,844

Total stage 1 and stage 2 loans 126,180 78,424 29,376 22,927 256,907

Stage 3, credit-impaired financial assets2 821 3,322 2,715 870 7,728

Total loans1 127,001 81,746 32,091 23,797 264,635

01.01.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Loans classified asStage 1 114,990 70,594 23,120 19,781 228,485Stage 2 5,796 7,578 4,762 2,449 20,585


Stage 3, credit-impaired financial assets2 806 4,248 2,657 1,058 8,769Total loans1 121,592 82,420 30,539 23,288 257,839

1 Amounts gross of expected credit losses2 Amounts do not include those purchased or originated credit-impaired financial assets

31.12.17 (IAS 39)


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Neither past due nor individually impaired 125,565 79,175 27,774 45,997 278,511Past due but not individually impaired 809 1,711 1,153 194 3,867Individually impaired 806 4,233 2,654 1,184 8,877Individual impairment provision (312) (2,361) (1,858) (706) (5,237)Portfolio impairment provision (129) (179) (121) (36) (465)

Total1 126,739 82,579 29,602 46,633 285,553

1 Excludes impairment charges relating to debt securities classified as loans and receivables, refer to Note 7 of the financial statements for details

51


Loans and advances to banks30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East


$millionTotal

$million

Loans classified asStage 1 29,772 12,079 4,384 16,213 62,448Stage 2 266 528 472 446 1,712


Stage 3, credit-impaired financial assets2 – – – – –

Total loans1 30,038 12,607 4,856 16,659 64,160

01.01.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Loans classified asStage 1 28,792 11,853 4,425 14,856 59,926Stage 2 1,212 557 169 432 2,370Total stage 1 and stage 2 loans 30,004 12,410 4,594 15,288 62,296

Stage 3, credit-impaired financial assets2 – – – 9 9

Total loans1 30,004 12,410 4,594 15,297 62,305

1 Amounts gross of expected credit losses2 Amounts do not include those purchased or originated credit-impaired financial asset

31.12.17 (IAS 39)


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Neither past due nor individually impaired 33,096 16,482 7,328 24,143 81,049Past due but not individually impaired 130 41 101 – 272Individually impaired – – – 9 9Individual impairment provision – – – (4) (4)Portfolio impairment provision – – (1) – (1)

Total1 33,226 16,523 7,428 24,148 81,325

1 Excludes impairment charges relating to debt securities classified as loans and receivables, refer to Note 7 of the financial statements for details

52


Credit quality by industry (unaudited)This section provides an analysis of the Group’s amortised cost portfolio by industry on a gross, total creditimpairment and net basis.

30.06.18


Grosscarryingamount$million


$million

Netcarryingamount$million



$million




$million




$million


Industry:Energy 15,699 (16) 15,683 2,783 (71) 2,712 962 (770) 192 19,444 (857) 18,587Manufacturing 20,025 (11) 20,014 3,220 (73) 3,147 827 (676) 151 24,072 (760) 23,312Financing,insurance andnon-banking 21,783 (9) 21,774 1,242 (9) 1,233 348 (143) 205 23,373 (161) 23,212Transport, telecomand utilities 13,567 (12) 13,555 2,735 (59) 2,676 757 (401) 356 17,059 (472) 16,587Food andhouseholdproducts 6,930 (6) 6,924 2,258 (20) 2,238 781 (356) 425 9,969 (382) 9,587Commercialreal estate 13,232 (16) 13,216 1,466 (24) 1,442 330 (50) 280 15,028 (90) 14,938Mining andquarrying 4,994 (9) 4,985 1,239 (21) 1,218 684 (365) 319 6,917 (395) 6,522Consumerdurables 7,260 (5) 7,255 1,733 (11) 1,722 649 (359) 290 9,642 (375) 9,267Construction 2,355 (3) 2,352 793 (14) 779 725 (450) 275 3,873 (467) 3,406Tradingcompanies &distributors 1,744 (2) 1,742 370 (2) 368 423 (217) 206 2,537 (221) 2,316Government 11,622 (1) 11,621 81 – 81 – – – 11,703 (1) 11,702Other 4,313 (6) 4,307 929 (9) 920 230 (144) 86 5,472 (159) 5,313

Retail Products:Mortgages 75,406 (18) 75,388 1,254 (6) 1,248 359 (121) 238 77,019 (145) 76,874CCPL and otherunsecured lending 15,350 (288) 15,062 1,206 (144) 1,062 410 (225) 185 16,966 (657) 16,309Auto 643 (2) 641 5 – 5 1 – 1 649 (2) 647Secured wealthproducts 17,130 (21) 17,109 424 (3) 421 202 (114) 88 17,756 (138) 17,618Other 3,010 (10) 3,000 106 (4) 102 40 (8) 32 3,156 (22) 3,134

Loans andadvances tocustomers1 235,063 (435) 234,628 21,844 (470) 21,374 7,728 (4,399) 3,329 264,635 (5,304) 259,331Loans andadvancesto banks2 62,448 (4) 62,444 1,712 (3) 1,709 – – – 64,160 (7) 64,153

Total3 297,511 (439) 297,072 23,556 (473) 23,083 7,728 (4,399) 3,329 328,795 (5,311) 323,484

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,231 million2 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $8,550 million3 Excludes loans held at fair value through profit or loss

53


01.01.2018




$million




$million




$million




$million


Industry:Energy 14,679 (15) 14,664 3,052 (78) 2,974 1,442 (913) 529 19,173 (1,006) 18,167Manufacturing 18,848 (9) 18,839 3,254 (77) 3,177 801 (614) 187 22,903 (700) 22,203Financing, insuranceand non-banking 18,275 (17) 18,258 1,341 (9) 1,332 403 (179) 224 20,019 (205) 19,814Transport, telecomand utilities 12,482 (11) 12,471 3,031 (89) 2,942 753 (397) 356 16,266 (497) 15,769Food andhousehold products 7,707 (7) 7,700 1,933 (41) 1,892 757 (423) 334 10,397 (471) 9,926Commercialreal estate 13,452 (16) 13,436 919 (41) 878 385 (44) 341 14,756 (101) 14,655Mining andquarrying 5,046 (3) 5,043 1,038 (11) 1,027 952 (674) 278 7,036 (688) 6,348Consumer durables 7,108 (4) 7,104 1,155 (18) 1,137 728 (553) 175 8,991 (575) 8,416Construction 2,546 (3) 2,543 792 (31) 761 786 (493) 293 4,124 (527) 3,597Trading companies& distributors 1,862 (1) 1,861 290 2 292 463 (336) 127 2,615 (335) 2,280Government 9,521 (1) 9,520 78 (1) 77 6 (1) 5 9,605 (3) 9,602Other 4,507 (7) 4,500 781 (11) 770 268 (175) 93 5,556 (193) 5,363

Retail Products:Mortgages 77,858 (8) 77,850 758 – 758 280 (131) 149 78,896 (139) 78,757CCPL and otherunsecured lending 15,959 (337) 15,622 685 (163) 522 505 (234) 271 17,149 (734) 16,415Auto 626 (3) 623 6 (1) 5 1 – 1 633 (4) 629Secured wealthproducts 13,301 (14) 13,287 720 (1) 719 197 (93) 104 14,218 (108) 14,110Other 4,708 (16) 4,692 752 (6) 746 42 (22) 20 5,502 (44) 5,458Loans andadvances tocustomers1 228,485 (472) 228,013 20,585 (576) 20,009 8,769 (5,282) 3,487 257,839 (6,330) 251,509Loans andadvancesto banks2 59,926 (6) 59,920 2,370 (2) 2,368 9 (4) 5 62,305 (12) 62,293

Total3 288,411 (478) 287,933 22,955 (578) 22,377 8,778 (5,286) 3,492 320,144 (6,342) 313,802

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,568 million2 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $5,099 million3 Excludes loans held at fair value through profit or loss

54


31.12.2017 (IAS 39)

Neither pastdue nor

individuallyimpaired$million

Past duebut not

individuallyimpaired$million

Individuallyimpaired$million

Individualimpairment

provision$million

Total$million

Movements in impairment


provisionheld as at

1 Jan 2017$million

Netimpairment

charge/(release)

$million

Amountswritten

off/othermovements

$million


provisionheld as at

31 Dec 2017$million

Industry:Energy 18,090 116 1,217 (879) 18,544 814 208 (143) 879Manufacturing 22,085 397 860 (611) 22,731 644 250 (283) 611Financing, insurance andnon-banking 44,439 314 444 (213) 44,984 409 79 (275) 213Transport, telecom and utilities 15,640 123 777 (376) 16,164 218 230 (72) 376Food and household products 9,543 179 756 (422) 10,056 561 75 (214) 422Commercial real estate 14,574 199 400 (34) 15,139 33 9 (8) 34Mining and quarrying 6,063 64 1,297 (783) 6,641 1,140 26 (383) 783Consumer durables 8,792 132 725 (583) 9,066 523 124 (64) 583Construction 3,346 60 781 (484) 3,703 553 59 (128) 484Trading companies & distributors 2,155 43 458 (331) 2,325 310 46 (25) 331Government 14,390 25 6 (1) 14,420 – (1) 2 1Other 5,579 16 252 (176) 5,671 195 37 (54) 178Retail Products:Mortgages 77,279 1,340 276 (117) 78,778 104 34 (21) 117CCPL and otherunsecured lending 16,700 610 360 (135) 17,535 140 398 (405) 133Auto 588 45 – – 633 – 1 (1) –Secured wealth products 13,969 57 198 (70) 14,154 4 28 38 70Other 5,279 147 70 (22) 5,474 19 19 (16) 22

Loans and advancesto customers1 278,511 3,867 8,877 (5,237) 286,018Individual impairment provision 5,667 1,622 (2,052) 5,237Portfolio impairment provision (465) 687 (239) 17 465

Total 285,553 6,354 1,383 (2,035) 5,702

Loans and advances to banks2 81,049 272 9 (4) 81,326 – – – –Individual impairment provision 163 – (159) 4Portfolio impairment provision (1) 1 – – 1

Total 81,325 164 – (159) 5

1 Includes loans held at fair value through profit or loss of $2,918 million and reverse repurchase agreements held at amortised cost of $33,581 million and fair value through profit orloss of $347 million

2 Includes loans held at fair value through profit or loss of $2,572 million and reverse repurchase agreements held at amortised cost of $20,694 million and fair value through profit orloss of $565 million

55


Movement in expected credit impairments for loans and advances to banks and customers

The table below sets out the movement in expected credit loss provisions by stage in respect of loan exposuresrelating to banks and customers. Loan exposures in this context means the balance sheet outstanding, together withundrawn committed facilities and undrawn cancellable facilities relating to overdrafts and credit cards.

The table is an aggregate of monthly movements. Transfers between stages are deemed to occur at the beginning ofa month and therefore amounts transferred net to zero. The re-measurement of expected credit loss resulting from achange in stage is reported within the profit and loss line of the stage in which they are transferred to.

Amortised costStage 1$million

Stage 2$million

Stage 3$million

Total$million

Credit impairment provisions as reported on balance sheet 478 578 5,286 6,342Credit impairment provisions as reported on undrawn commitments 66 90 – 156

Total credit impairment provisions as at 1 January 1 544 668 5,286 6,498Exchange rate differences and other movements (48) 6 (154) (196)Transfer across stages 118 (267) 149 –Net profit and loss (release)/charge2 (130) 134 154 158Unwinding of discount – – (29) (29)Recoveries of amounts previously written off – – 175 175Write offs – – (1,182) (1,182)

Total credit impairment provisions as at 30 June2 484 541 4,399 5,424

Of which:Credit impairment provisions as reported on balance sheet 439 473 4,399 5,311Credit impairment provisions as reported on undrawn commitments 45 68 – 113

1 Includes reverse repurchase agreements and other similar lending2 Total credit impairment charge of $214 million reported in the income statement includes $60 million charge in respect of financial guarantees and a $4 million release relating to debt

securities which are not included here

Movement in gross exposures for loans and advances to banks and customers

Stage 1$million

Stage 2$million

Stage 3$million

Total$million

Loan exposures as reported on balance sheet (amortised cost) 288,411 22,955 8,778 320,144Undrawn commitments 147,007 15,240 – 162,247

Total loan exposures as at 1 January 1 435,418 38,195 8,778 482,391

Loan exposures as reported on balance sheet (amortised cost) 297,511 23,556 7,728 328,795Undrawn commitments 128,422 12,592 – 141,014

Total loan exposures as at 30 June1 425,933 36,148 7,728 469,809

1 Includes reverse repurchase agreements and other similar lending

Loan exposures are 3 per cent lower than 1 January 2018, primarily reflecting lower levels of undrawn commitments.

On-balance sheet loan exposures in stage 1 have increased by $9.1 billion reflecting growth in Financing, Insuranceand non-banking clients within Corporate & Institutional Banking, together with higher levels of Secured wealthproducts in Retail Banking.

On-balance sheet loan exposures in stage 2 increased $0.6 billion to $23.6 billion.

Total loan exposures in stage 3 decreased 12 per cent ($1.1 billion) to $7.7 billion, primarily due to increased levels ofwrite-offs and recoveries.

56


Problem credit management and provisioning

Credit impairmentThe ongoing business credit impairment charge in Corporate & Institutional Banking of $67 million for the first half of2018 is significantly lower than the previous half in 2017. This was due to lower stage 3 impairment which was drivenby lower losses particularly in ASEAN & South Asia and recoveries from a small number of major exposures in Indiaand the Middle East.

Commercial Banking ongoing business credit impairment was at $106 million, a decrease of 16 per cent from thesecond half of 2017 albeit higher than the first half of 2017. Geographically, Africa & Middle East contributed to 60 percent of the first half credit impairment. The Group remains vigilant for emerging risks.

In the liquidation portfolio, there was a net release of $70 million due to resolution of some of the assets as thedisposal work out process progresses.

Retail Banking credit impairment reduced 41 per cent to $119 million at June 2018 (H2 2017: $202 million, H1 2017:$172 million), mainly driven by continued improvement in portfolio shape and performance, particularly within theunsecured portfolios.

The following table provides details of the credit impairment charge for the period.

6 months ended30.06.18$million(IFRS 9)

6 months ended31.12.171

$million(IAS 39)


$million(IAS 39)

Ongoing business portfolio credit impairment

Corporate & Institutional Banking 672 288 369Retail Banking 119 202 172Commercial Banking 106 126 42Private Banking 1 1 –Credit impairment 293 617 583

Restructuring

Liquidation portfolio (70) 59 61Others (9) 31 11

Credit impairment (79) 90 72Total credit impairment 214 707 655

1 Prepared and disclosed on an IAS 39 basis2 Credit impairment recovery of $14 million in Central & Other items is included in Corporate & Institutional Banking

57


Forborne and other modified loansA forborne loan arises when a concession has been made to the contractual terms of a loan in response to acustomer’s financial difficulties. The table below presents stage 2 and stage 3 loans with forbearance measures bysegment.

30.06.18

Loans tobanks

$million


Banking$million





$millionTotal

$million

All loans with forbearance measures – 2,202 385 709 – – 3,296Credit impairment (stage 3) – (657) (136) (466) – – (1,259)

Net balance – 1,545 249 243 – – 2,037

01.01.18

Loans tobanks

$million


Banking$million





$millionTotal

$million

All loans with forbearance measures 6 2,143 797 612 – – 3,558Credit impairment (stage 3) – (802) (176) (394) – – (1,372)Net balance 6 1,341 621 218 – – 2,186

31.12.17 (IAS 39)

Loans tobanks

$million


Banking$million





$millionTotal

$million

All loans with forbearance measures 6 2,143 797 647 – – 3,593Accumulated impairment – (802) (176) (430) – – (1,408)Net balance 6 1,341 621 217 – – 2,185

Credit impaired (stage 3) loans by client segmentOverall gross credit-impaired (stage 3) loans for the Group have decreased significantly to $7.7 billion (1 January 2018:$8.8 billion) with significant reductions in the liquidation portfolio as the Group continued to assertively manage downand exit the exposures.

Stage 3 loans in Corporate & Institutional Banking decreased by $1.1 billion or 19 per cent compared with 1 January2018. The reductions were largely due to recoveries and write-offs, coupled with a lower level of inflows. TheCorporate & Institutional Banking liquidation portfolio stage 3 loans reduced by $0.6 billion (30 per cent) due toprogress made in resolving and exiting accounts.

Stage 3 loans in Commercial Banking increased marginally by $74 million (4 per cent) due to higher levels of inflows.New inflows were driven by a small number of exposures in Greater China & North Asia and Africa & Middle East withno specific industry concentration.

Stage 3 loans in Retail Banking remain broadly stable (30 June 2018: $800 million and 1 January 2018: $818 million).

58


Cover ratioThe cover ratio measures the proportion of stage 3 impairment provisions to gross stage 3 loans, and is a metriccommonly used in considering impairment trends. This metric does not allow for variations in the composition ofstage 3 loans and should be used in conjunction with other credit risk information provided, including the level ofcollateral cover.

By client segment, the cover ratio before collateral for Corporate & Institutional Banking reduced from 59 per cent to54 per cent due to a small number of write-offs which had a high level of provisions. The cover ratio for CommercialBanking remained broadly stable at 69 per cent (1 January 2018: 70 per cent). The cover ratio for Retail Bankingremained broadly stable at 47 per cent (1 January 2018: 48 per cent). and cover ratio including collateral improved to79 per cent (1 January 2018: 74 per cent).

The Private Banking segment remains fully covered taking into account the collateral held.

The balance of stage 3 loans not covered by stage 3 impairment provisions represents the adjusted value of collateralheld and the net outcome of any workout or recovery strategies.

Collateral provides risk mitigation to some degree in all client segments and supports the credit quality and cover ratioassessments post impairment provisions. Further information on collateral is provided in the credit risk mitigationsection.

The table below presents the balance of the gross stage 3 loans to banks and customers, together with the provisionsheld, for all segments and the respective cover ratios. For the reconciliation between the non-performing loans underIAS 39 and under IFRS 9, refer to note 27.

30.06.18


Banking$million




Total$million

Gross credit impaired1 4,686 800 2,030 212 7,728Credit impaired provisions (2,536) (372) (1,395) (96) (4,399)

Net credit impaired 2,150 428 635 116 3,329

Cover ratio 54% 47% 69% 45% 57%Collateral ($million) 992 262 307 118 1,679Cover ratio (after collateral) 75% 79% 84% 100% 79%

01.01.18


Banking$million




Total$million

Gross credit impaired1 5,797 818 1,956 207 8,778Credit impaired provision (3,437) (389) (1,369) (91) (5,286)

Net credit impaired 2,360 429 587 116 3,492

Cover ratio 59% 48% 70% 44% 60%Collateral ($million) 1,111 218 277 203 1,809Cover ratio (after collateral) 78% 74% 84% 100% 81%

1 Excludes FVTPL impaired loans

31.12.17 (IAS 39)


Banking$million




Total$million

Gross non-performing loans 5,957 489 2,026 207 8,679Individual impairment provisions1 (3,468) (215) (1,430) (67) (5,180)

Net non-performing loans 2,489 274 596 140 3,499Portfolio impairment provisions (157) (208) (99) (2) (466)

Total 2,332 66 497 138 3,033

Cover ratio 61% 87% 75% 33% 65%Cover ratio (excluding portfolio impairment provisions) 58% 44% 71% 32% 60%Collateral ($ million) 1,111 218 277 203 1,809Cover ratio (after collateral) 77% 89% 84% 100% 81%

1 The difference to total individual impairment provision reflects provisions against forborne loans that are not included within non-performing loans as they have been performing for180 days

59


Credit-impaired (stage 3) loans by geographic region (unaudited)Stage 3 loans decreased by $1.1 billion or 12 per cent compared with January 2018. The largest decrease was in theASEAN & South Asia region ($926 million), primarily driven by reductions in the liquidation portfolio through disposal ofloans and write-offs.

The following tables present a breakdown of total stage 3 loans to banks and customers by geographic regions:

30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East


$millionTotal

$million

Gross credit impaired 821 3,322 2,715 870 7,728Credit impairment provisions (327) (2,028) (1,724) (320) (4,399)

Net credit impaired 494 1,294 991 550 3,329

Cover ratio 40% 61% 63% 37% 57%

01.01.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Gross credit impaired 806 4,248 2,657 1,067 8,778Credit impairment provisions (308) (2,500) (1,846) (632) (5,286)

Net credit impaired 498 1,748 811 435 3,492

Cover ratio 38% 59% 69% 59% 60%

31.12.17 (IAS 39)


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Gross non-performing loans 895 3,948 2,692 1,144 8,679Individual impairment provisions (396) (2,389) (1,675) (720) (5,180)

Non-performing loans net of individual impairment provision 499 1,559 1,017 424 3,499Portfolio impairment provisions (129) (180) (121) (36) (466)

Net non-performing loans and advances 370 1,379 896 388 3,033

Cover ratio 59% 65% 67% 66% 65%

Cover ratio (excluding portfolio impairment provisions) 60%

60


Movement of credit impaired (stage 3) provisions by client segmentThe credit impairment provisions as at 30 June 2018 were lower at $4,399 million as compared with $5,286 million asat 1 January 2018, largely due to material reductions in Corporate and Institutional Banking.

The Corporate and Institutional Banking credit impairment provisions as at 30 June 2018 decreased by 26 per cent($901 million) compared with 1 January 2018 driven by write offs and lower new provisions taken in the first half 2018.

The following table shows the movement of credit impaired (stage 3) provisions for each client segment:

30.06.18


Banking$million




Total1

$million

Gross credit impaired loans at 30 June 4,686 800 2,030 212 7,728

Credit impairment provisions at 1 January 3,437 389 1,369 91 5,286Exchange translation difference (126) (11) (13) – (150)Amounts written off (853) (266) (63) – (1,182)Recoveries of amounts written off 49 115 11 – 175Discount unwind (7) (3) (19) – (29)New provisions charge/(release) 357 187 194 6 744Recoveries/derecognition (repayment) (374) (125) (91) – (590)Other movements – (3) – (1) (4)Net transfers into and out of stage 3 53 89 7 – 149

Credit impairment provisions at 30 June 2,536 372 1,395 96 4,399

Net credit impairment 2,150 428 635 116 3,329

31.12.17 (IAS 39)


Banking$million




Total1

$million

Gross impaired loans at 31 December 5,957 695 2,027 207 8,886Provisions held at 1 January 3,961 262 1,602 5 5,830Exchange translation differences 55 15 31 1 102Amounts written off (1,139) (577) (444) – (2,160)Releases of acquisition fair values (1) – – – (1)Transfer to assets held for sale 27 153 22 32 234Discount unwind (41) (23) (19) – (83)Transfer to assets held for sale – (6) – – (6)New provisions 1,197 669 327 63 2,256Recoveries/provisions no longer required (314) (218) (86) (34) (652)Net individual impairment charge against profit 883 451 241 29 1,604Other movements2 (277) – (2) – (279)Individual impairment provisions held at 31 December 3,468 275 1,431 67 5,241Net individually impaired loans 2,489 420 596 140 3,645

1 Excludes credit impairment relating to loan commitments and financial guarantees2 Other movements include provisions for liabilities and charges that have been drawn down and are now part of loan impairment

61


Credit risk mitigation

Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such ascollateral, netting arrangements, credit insurance and credit derivatives, taking into account expected volatility andguarantees. The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legalcertainty and enforceability, market valuation correlation and counterparty risk of the guarantor.

CollateralThe requirement for collateral is not a substitute for the ability to pay, which is the primary consideration for anylending decisions. As a result of reinforcing our collateralisation requirements, the fair value of collateral held as apercentage of amount outstanding has decreased from 46 per cent to 45 per cent in the first half of 2018.

The unadjusted market value of collateral across all asset types, in respect of Corporate & Institutional Banking andCommercial Banking, without adjusting for over-collateralisation, was $263 billion (2017: $247 billion).

The collateral values in the table below are adjusted where appropriate in accordance with our risk mitigation policyand for the effect of over-collateralisation. 50 per cent of clients that have placed collateral with the Group areover-collateralised. The average amount of over-collateralisation is 38 per cent.

We have remained prudent in the way we assess the value of collateral, which is calibrated for a severe downturn andbacktested against our prior experience. On average, across all types of non-cash collateral, the value ascribed isapproximately half of its current market value. Collateral held against Corporate & Institutional Banking andCommercial Banking exposures amounted to $73 billion.

In the Retail Banking and Private Banking segments, a secured loan is one where the borrower pledges an asset ascollateral of which the Group is able to take possession in the event that the borrower defaults. The collateral level forRetail Banking has increased by $1.7 billion in the first half of 2018.

For loans and advances to customers and banks (including those held at fair value through profit or loss), the tablebelow sets out the fair value of collateral held by the Group, adjusted where appropriate in accordance with the riskmitigation policy and for the effect of over-collateralisation.

The table below details collateral held against exposures, separately disclosing stage 3 exposure and correspondingcollateral.

30.06.18

Amount outstanding Collateral Net exposure1,2

Total$million

Stage 2financial

assets$million

Creditimpairedfinancial

assets(Stage 3)$million

Total$million

Stage 2financial

assets$million



Total$million

Stage 2financial

assets$million



Corporate &Institutional Banking 228,656 14,084 2,215 67,342 1,715 999 161,314 12,369 1,216Retail Banking 101,530 2,417 428 78,194 1,279 262 23,336 1,138 166Commercial Banking 28,571 6,161 647 6,055 2,795 307 22,516 3,366 340Private Banking 13,565 421 116 9,158 196 118 4,407 225 (2)Central and other items 9,756 – – 9,756 – – – – –

Total 382,078 23,083 3,406 170,505 5,985 1,686 211,573 17,098 1,720

31.12.17 (IAS 39)

Maximum exposure Collateral Net expsoure1,2

Total$million

Past due butnot individually

impairedloans

$million

Individuallyimpaired

loans$million

Total$million


impairedloans

$million


loans$million

Total$million


impairedloans

$million


loans$million

Corporate &Institutional Banking 193,442 1,455 5,957 70,499 160 1,111 122,943 1,295 4,846Retail Banking 103,371 2,114 695 76,543 1,514 218 26,828 600 477Commercial Banking 29,602 483 2,027 6,570 247 277 23,032 236 1,750Private Banking 13,359 85 207 9,296 82 203 4,063 3 4Central and other items 27,570 2 – 5,339 – – 22,231 2 –

Total 367,344 4,139 8,886 168,247 2,003 1,809 199,097 2,136 7,077

1 Includes loans held at fair value through profit or loss2 Includes loans and advances to banks

62


Collateral – Corporate & Institutional Banking and Commercial BankingCollateral held against Corporate & Institutional Banking and Commercial Banking exposures amounted to $73 billion.The decrease of $4 billion was primarily in reverse repurchase (repo) collateral due to increased liquidity managementactivity by the Group. The proportion of investment grade securities in reverse repos collateral remains stable at 97per cent. The average residual maturity of the reverse repo collateral is 8.1 years.

Collateral taken for longer-term and sub-investment grade corporate loans continues to be high at 55 per cent.

Our underwriting standards encourage taking specific charges on assets and we consistently seek high-quality,investment grade collateral. 28 per cent of collateral held comprises physical assets or is property-based, with theremainder largely in cash and investment securities.

Non-tangible collateral such as guarantees and standby letters of credit may also be held against corporateexposures, although the financial effect of this type of collateral is less significant in terms of recoveries. However, thistype of collateral is considered when determining probability of default and other credit-related factors. Collateral isalso held against off-balance sheet exposures, including undrawn commitments and trade-related instruments.

The following table provides an analysis of the types of collateral held against Corporate & Institutional Banking andCommercial Banking loan exposures.

Corporate & Institutional Banking30.06.18$million

31.12.17 (IAS 39)$million

Maximum exposure 228,656 193,442

Property 8,260 7,014Plant, machinery and other stock 3,152 3,612Cash 5,531 5,742Reverse repos 46,092 49,736

AAA 284 1,027A- to AA+ 39,700 40,421BBB- to BBB+ 4,693 6,448Lower than BBB- 558 915Unrated 857 925

Commodities 228 162Ships and aircraft 4,079 4,233

Total value of collateral 67,342 70,499

Net exposure 161,314 122,943

Commercial Banking30.06.18$million

31.12.17 (IAS 39)$million

Maximum exposure 28,571 29,602

Property 4,191 4,642Plant, machinery and other stock 762 767Cash 901 923Reverse repos – –

AAA – –A- to AA+ – –BBB- to BBB+ – –Lower than BBB- – –Unrated – –

Commodities 6 4Ships and aircraft 195 234

Total value of collateral 6,055 6,570

Net exposure 22,516 23,032

63


Collateral – Retail Banking and Private BankingIn Retail Banking and Private Banking, 85 per cent of the portfolio is fully secured. The proportion of unsecured loansremains broadly stable at 14 per cent and remaining 1 per cent is partially secured.

Loan-to-value (LTV) ratios measure the ratio of the current mortgage outstanding to the current fair value of theproperties on which they are secured.

In mortgages the value of property held as security significantly exceeds the value of mortgage loans. The averageLTV of the overall mortgage portfolio is less than 45 per cent. Hong Kong, which represents 37 per cent of the RetailBanking mortgage portfolio has an average LTV of 35.4 per cent. All of our other key markets continue to have lowportfolio LTVs, (Korea, Singapore and Taiwan at 45.6 per cent, 57.1 per cent and 51.2 per cent respectively).

An analysis of LTV ratios by geography for the mortgage portfolio is presented in the mortgage LTV ratios bygeography table below.

The following table presents an analysis of loans to individuals by product; split between fully secured, partiallysecured and unsecured.

30.06.18 31.12.17 (IAS 39)

Fully secured$million

Partiallysecured$million

Unsecured$million

Total1

$million

Fullysecured$million

Partiallysecured$million

Unsecured$million

Total1

$million

Maximum exposure 97,592 758 16,745 115,095 97,523 1,301 17,750 116,574

Loans to individualsMortgages 76,829 45 – 76,874 78,755 23 – 78,778CCPL 243 98 16,474 16,815 240 86 17,209 17,535Auto 647 – – 647 630 – 3 633

Secured wealth products 17,164 215 246 17,625 13,903 156 95 14,154Other 2,709 400 25 3,134 3,995 1,036 443 5,474

Total collateral 87,352 85,839

Net exposure 27,743 30,735

Percentage of total loans 85% 1% 14% 84% 1% 15%

1 Amounts net of individual impairment provisions

Mortgage loan-to-value ratios by geographyThe following table provides an analysis of loan-to-value ratios by region for the mortgages portfolio:

30.06.18


%

ASEAN &South Asia

%

Africa &Middle East

%

Europe &Americas

%Total

%

Less than 50 per cent 68.5 38.8 21.2 23.1 58.450 per cent to 59 per cent 15.0 17.9 17.2 23.5 16.060 per cent to 69 per cent 11.4 19.3 22.7 29.8 14.270 per cent to 79 per cent 4.2 21.6 20.6 21.3 9.680 per cent to 89 per cent 0.7 2.0 11.0 2.3 1.490 per cent to 99 per cent 0.1 0.2 4.1 – 0.2100 per cent and greater 0.1 0.2 3.2 – 0.2

Average portfolio loan-to-value 41.2 53.2 64.2 53.4 44.7

Loans to individuals – mortgages ($million) 52,754 20,005 2,237 1,878 76,874

31.12.17 (IAS 39)


%

ASEAN &South Asia

%

Africa &Middle East

%

Europe &Americas

%Total

%

Less than 50 per cent 62.9 36.1 21.6 28.4 54.750 per cent to 59 per cent 16.4 17.5 16.9 23.4 16.860 per cent to 69 per cent 15.3 18.7 22.6 31.4 16.670 per cent to 79 per cent 4.5 22.8 20.8 13.7 9.580 per cent to 89 per cent 0.7 4.3 11.2 2.0 1.990 per cent to 99 per cent 0.1 0.3 3.9 0.4 0.3100 per cent and greater 0.1 0.3 3.0 0.8 0.2

Average portfolio loan-to-value 43.5 55.0 63.9 52.1 46.8

Loans to individuals – mortgages ($million) 54,609 20,105 2,279 1,785 78,778

64


Industry and Retail Products analysis by geographic region (unaudited)

This section provides an analysis of the Group’s amortised cost loan portfolio, net of provisions, by industry andregion.

In the Corporate & Institutional Banking and Commercial Banking segments our largest industry exposures aremanufacturing and financing, insurance and non-banking, each constituting 16 per cent of Corporate & InstitutionalBanking and Commercial Banking loans and advancesto customers. Lending to financing, insurance and non-banking clients is mostly to investment grade institutions andis part of the liquidity management of the Group.

The manufacturing industry group is spread across a diverse range of industries, including automobiles andcomponents, capital goods, pharmaceuticals, biotech and life sciences, technology hardware and equipment,chemicals, paper products and packaging, with lending spread over 4,553 clients.

Loans and advances to the energy sector have remained stable and constitute 13 per cent of total loans andadvances to Corporate & Institutional Banking and Commercial Banking. The energy sector lending is spread acrossfive subsectors and over 460 clients.

The Group provides loans to commercial real estate counterparties of $14.9 billion, which represents 6 per cent oftotal customer loans and advances. In total, $8.6 billion of this lending is to counterparties where the source ofrepayment is substantially derived from rental or sale of real estate and is secured by real estate collateral. Theremaining commercial real estate loans comprise working capital loans to real estate corporates, loans withnon-property collateral, unsecured loans and loans to real estate entities of diversified conglomerates. The averageLTV ratio of the commercial real estate portfolio has increased to 44 per cent, compared with 41 per cent in 2017. Theproportion of loans with an LTV greater than 80 per cent has remained at 1 per cent during the same period.

Credit cards and personal loans (CCPL) and other unsecured lending of total Retail Products loans and advancesremains broadly stable at 14 per cent.

Industry and Retail Products analysis by geographic region30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Industry:Energy 2,408 6,516 3,037 6,626 18,587Manufacturing 11,434 5,767 3,945 2,166 23,312Financing, insurance and non-banking 10,423 5,189 1,188 6,412 23,212Transport, telecom and utilities 6,813 4,056 4,773 945 16,587Food and household products 2,059 3,898 2,498 1,132 9,587Commercial real estate 8,084 4,923 1,780 151 14,938Mining and quarrying 2,316 2,241 1,195 770 6,522Consumer durables 6,060 1,810 777 620 9,267Construction 932 1,025 1,267 182 3,406Trading companies and distributors 1,158 589 511 58 2,316Government 1,419 7,910 2,077 296 11,702Other 1,939 1,812 905 657 5,313

Retail Products:Mortgages 52,754 20,005 2,237 1,878 76,874CCPL and other unsecured lending 9,587 4,093 2,628 1 16,309Auto – 457 190 – 647Secured wealth products 6,680 9,006 381 1,551 17,618Other 2,351 109 674 – 3,134

Net loans and advances to customers 126,417 79,406 30,063 23,445 259,331

Net loans and advances to banks 30,036 12,605 4,855 16,657 64,153

65


01.01.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Industry:Energy 2,841 5,874 3,188 6,264 18,167Manufacturing 10,885 6,290 3,145 1,883 22,203Financing, insurance and non-banking 7,096 4,996 1,242 6,480 19,814Transport, telecom and utilities 6,396 3,870 4,508 995 15,769Food and household products 2,173 4,100 2,485 1,168 9,926Commercial real estate 8,047 5,084 1,472 52 14,655Mining and quarrying 1,878 2,857 1,033 580 6,348Consumer durables 4,214 2,536 975 691 8,416Construction 987 1,097 1,275 238 3,597Trading companies and distributors 1,153 573 426 128 2,280Government 1,669 6,585 1,184 164 9,602Other 1,831 1,884 1,069 579 5,363Retail Products:Mortgages 54,602 20,099 2,273 1,783 78,757CCPL and other unsecured lending 9,585 3,935 2,893 2 16,415Auto – 399 230 – 629Secured wealth products 5,268 6,973 212 1,657 14,110Other 2,349 2,409 696 4 5,458



31.12.17 (IAS 39)


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Industry:Energy 2,855 6,097 3,303 6,289 18,544Manufacturing 10,919 6,685 3,221 1,906 22,731Financing, insurance and non-banking 8,213 6,421 1,308 29,042 44,984Transport, telecom and utilities 6,456 3,965 4,707 1,036 16,164Food and household products 2,174 4,126 2,577 1,179 10,056Commercial real estate 8,429 5,169 1,479 62 15,139Mining and quarrying 2,079 2,903 1,089 570 6,641Consumer durables 4,432 2,544 1,300 790 9,066Construction 989 1,118 1,358 238 3,703Trading companies and distributors 1,192 573 432 128 2,325Government 4,864 6,728 1,430 1,398 14,420Other 1,839 2,174 1,075 583 5,671

Retail Products:Mortgages 54,609 20,105 2,279 1,785 78,778CCPL and other unsecured lending 10,175 4,336 3,022 2 17,535Auto – 399 234 – 633Secured wealth products 5,278 7,005 213 1,658 14,154Other 2,365 2,410 696 3 5,474

126,868 82,758 29,723 46,669 286,018Portfolio impairment provision (129) (179) (121) (36) (465)



66


IFRS 9 methodology

Approach for determining expected credit lossesCredit loss terminologyComponent Definition

Probability of default (PD) The probability at a point in time that a counterparty will default, calibrated over up to 12 months from the reportingdate (stage 1) or over the lifetime of the product (stage 2) and incorporating the impact of forward-looking economicassumptions that have an effect on credit risk, such as interest rates, unemployment rates and GDP forecasts.The PD is estimated at a point in time that means it will fluctuate in line with the economic cycle. The term structureof the PD is based on statistical models, calibrated using historical data and adjusted to incorporate forward-lookingeconomic assumptions.

Loss given default (LGD) The loss that is expected to arise on default, incorporating the impact of forward-looking economic assumptionswhere relevant, which represents the difference between the contractual cash flows due and those that the bankexpects to receive.The Group estimates LGD based on the history of recovery rates and considers the recovery of any collateral that isintegral to the financial asset, taking into account forward-looking economic assumptions where relevant.

Exposure at default (EAD) The expected balance sheet exposure at the time of default, taking into account the expected change in exposureover the lifetime of the exposure. This incorporates the impact of drawdowns of committed facilities, repaymentsof principal and interest, amortisation and prepayments, together with the impact of forward-looking economicassumptions where relevant.

To determine the expected credit loss, these components are multiplied together (PD for the reference period (up to12 months or lifetime) x LGD at the beginning of the period x EAD at the beginning of the period) and discounted tothe balance sheet date using the effective interest rate as the discount rate.

Although the IFRS 9 models leverage the existing Basel advanced IRB risk components, several significantadjustments are required to ensure the resulting outcome is in line with the IFRS 9 requirements.

Key differences between regulatory and IFRS expected credit loss modelsBasel advanced IRB Expected Loss (EL) IFRS 9 Expected credit loss

Rating philosophy Mix of point-in-time, through-the-cycle or hybrid Point-in-time, forward looking

Parameters calibration Often conservative, due to regulatory floors and downturncalibration

Unbiased estimate, based on conditions known at thebalance sheet date

– PD Inclusion of forward-looking information and removal ofconservatism and bias

– LGD Removal of regulatory floors, exclusion of non-directcosts

– EAD Floored at outstanding amount Recognises ability to have a reduction in exposure fromthe balance sheet date to the default date

Time frame 12-month period Up to 12 months and lifetime

Discounting applied Discounting at the weighted average cost of capitalto the time of default

Discounting at the effective interest rate (EIR) to thebalance sheet reporting date

Global IFRS 9 expected credit loss models have been developed for the Corporate & Institutional Banking andCommercial Banking businesses. Given the global nature of these portfolios; these models are global in nature at thebase level. However, for some of the most material countries, country-specific models have been developed for theCorporate & Institutional Banking and Commercial Banking clients.

The calibration of forward-looking information is assessed at a country or region level to take into account localmacroeconomic conditions.

Retail banking expected credit loss models are country and product specific given the local nature of the RetailBanking business.

For less material Retail Banking loan portfolios, the Group has adopted simplified approaches based on historical rollrates or loss rates:

• For medium-sized Retail Banking portfolios, a roll rate model is applied, which uses a matrix that givesaverage loan migration rate from delinquency states from period to period. A matrix multiplication is thenperformed to generate the final PDs by delinquency bucket over different time horizons

• For smaller Retail Banking portfolios, loss rate models are applied. These use an adjusted gross charge-offrate, developed using monthly write-off and recoveries over the preceding 12 months and total outstandingbalances

67


Application of lifetimeExpected credit loss is estimated based on the shorter of the expected life and the maximum contractual period forwhich the Group is exposed to credit risk. For Retail Banking credit cards and Corporate & Institutional Bankingoverdraft facilities, however the Group does not typically enforce the contractual period. As a result, for theseinstruments, the lifetime of the exposure is based on the period the Group is exposed to credit risk. This period hasbeen determined by reference to the extent to which credit risk management actions curtail the period of exposure.For credit cards, this has resulted in an average life of between 3 and 10 years across our footprint markets. Overdraftfacilities have a 22-month lifetime.

Key assumptions and judgements in determining expected credit lossIncorporation of forward-looking information and the impact of non-linearityThe evolving economic environment is a key determinant of the ability of a bank’s clients to meet their obligations asthey fall due. It is a fundamental principle of IFRS 9 that the provisions banks hold against potential future credit risklosses should depend not just on the health of the economy today, but should also take account of changes to theeconomic environment in the future. For example, if a bank expected a sharp slowdown in the world economy waslikely over the coming year, it should hold more provisions today to ensure that it was able to absorb credit losses thatwould be likely to occur in the near future.

To capture the effect of changes to the economic environment in the future, the computation of probability of default(PD), loss given default (LGD) and so expected credit loss incorporates forward-looking information; assumptions onthe path of economic variables and asset prices that are likely to have an effect on the repayment ability of theGroup’s clients. For example, economic variables specific to individual countries include economic growth, interestrates, unemployment rates, property prices, and prices of assets that trade on global markets such as oil, industrialmetals and other commodities. Less sophisticated approaches, such as loss rate models, do not directly incorporateforward-looking information.

The starting point for the projections of economic variables and asset prices is based on management’s view, whichunderlies the plan to deliver the Group’s strategy and ensure that has sufficient capital over the medium term.

Management’s view covers a core set of economic variables and asset prices required to set the strategic plan. Toreach the full set of economic variables and asset prices required to compute expected credit loss for all the Group’sclients in all the Group’s footprint markets, management’s view is augmented with projections from the Group’sin-house research team and outputs from a range of models that project specific economic variables and assetprices.

Forecast of key macroeconomic variables underlying the expected credit loss calculationThe base forecast – management’s view of the most likely outcome – is that the synchronised expansion of the globaleconomy will continue over the coming years alongside a normalisation of monetary policy in the developed worldand the successful rebalancing of the Chinese economy, with US-China trade tensions putting China’s export sectorsunder some pressure.

While the most likely outcome is the basis for the Group’s strategic plan, one of the key requirements of IFRS 9 is thatthe assessment of provisions should be based on a range of potential outcomes for the future economic environment.For example, the global economy may grow more quickly or more slowly than the most likely outcome and this wouldbe expected to have different implications for the provisions that the Group should hold today. As the Group’s clientstend to be more affected when the economic environment weakens than when it strengthens, it is possible that therange of expected credit loss outcomes resulting from a range of scenarios around the most likely scenario may beskewed to the downside. So, if the Group computes expected credit loss uniquely on the basis of the most likelyoutcome, it might not end up with the appropriate level of provisions. This is the concept of non-linearity in expectedcredit loss under IFRS 9.

To address the potential non-linearity in expected credit loss, the Group simulates a set of scenarios around the baseforecast and generates 50 scenarios upon which to compute expected credit loss. These scenarios are generated bya Monte Carlo simulation, which considers the degree of uncertainty (or volatility) around economic outcomes, howthese outcomes have generally tended to move together (or correlation), and how the range of reasonably possibleoutcomes would be defined.

While the 50 scenarios do not each have a specific narrative, they reflect a range of plausible hypothetical alternativeoutcomes for the global economy. Some are better than the base forecast and represent an unwinding of the currentshocks and uncertainty leading to higher global economic activity and higher asset prices. Some are worse than thebase forecast and represent an intensification of current shocks or introduction of new shocks that raise uncertaintyleading to lower global economic activity and lower asset prices.

68


The table on the next page sets out a representative summary of the economic variables and asset prices that theGroup considers to be among the most important determinants of the Group’s expected credit loss. The key dataprovided is the average expected outturn for each economic variable and asset price in the base forecast over thenext five years (June 2018 – June 2023) in the most likely scenario and an indicator of the range of each economicvariable and asset price over the same period across the multiple scenarios.

30.06.2018

China Hong Kong Korea Singapore India

Baseforecast Low2 High3





GDP growth(YoY%) 6.1 4.2 7.6 3.0 0.1 5.3 2.9 0.6 5.4 2.3 (1.5) 6.4 7.7 5.5 10.1Unemployment(%) 3.9 3.8 4.1 3.5 2.4 4.6 3.3 2.6 4.1 3.0 2.3 3.8 N/A1 N/A1 N/A1

3-month interestrates (%) 4.3 3.1 5.6 2.7 1.6 3.7 2.3 1.2 3.4 1.9 1.1 3.4 6.2 4.6 7.6House prices(YoY%) 5.4 3.0 8.2 1.7 (9.3) 11.4 3.5 1.1 6.1 4.5 (1.8) 10.9 8.7 1.1 14.8

01.01.2018

China Hong Kong Korea Singapore India






GDP growth(YoY%) 6.1 4.5 7.6 3.0 0.3 5.4 2.9 0.8 5.6 2.3 (2.0) 6.1 7.5 5.4 9.7Unemployment (%) 4.0 3.8 4.2 3.6 2.4 4.8 3.3 2.5 4.6 2.8 2.2 3.5 N/A1 N/A1 N/A1

3-month interestrates (%) 4.2 2.9 5.6 1.7 1.0 3.7 2.3 1.4 4.3 1.7 1.2 3.9 6.2 5.3 9.0House prices(YoY%) 5.4 3.5 8.0 2.0 (7.5) 12.3 3.5 1.4 6.0 3.8 (1.8) 9.2 8.5 1.3 15.5

Crude Oil Brent, USD pb


30.06.2018 76.5 38.1 104.8

Crude Oil Brent, USD pb


01.01.2018 61.0 35.0 92.0

1 Not available2 Represents the 10th percentile in the range used to determine non-linearity3 Represents the 90th percentile in the range used to determine non-linearity

The final expected credit loss reported by the Group is a simple average of the 50 scenarios. The impact ofnon-linearity on expected credit loss is set out in the table below:

Includingnon-linearity

$m

Excludingnon-linearity

$mDifference

%

Total expected credit loss1 1,227 1,198 2.4

1 Total modelled expected credit loss comprises stage 1 and stage 2 balances of $1,075 million and $152 million of modelled expected credit loss on stage 3 loans

The average expected credit loss under multiple scenarios is 2.4 per cent higher than the expected credit losscomputed using only the most likely scenario. Portfolios that are more sensitive to non-linearity include those with alonger tenor, such as Project and Shipping Finance, and credit card portfolios.

Credit-impaired assets managed by Group Special Assets Management (GSAM) incorporate forward-lookingeconomic assumptions in respect of the recovery outcomes identified and are assigned individual probabilityweightings. These assumptions are not based on a Monte Carlo simulation but are informed by thebase case.

69


Significant increase in credit riskQuantitative criteriaSignificant deterioration is assessed by comparing the risk of default at the reporting date to the risk of default atorigination. Whether a change in the risk of default is significant or not is assessed using quantitative and qualitativecriteria. These quantitative significant deterioration thresholds have been separately defined for each business andwhere meaningful are consistently applied across business lines.

Assets are considered to have experienced significant credit deterioration if they have breached both relative andabsolute thresholds for the change in the average annualised lifetime probability of default over the residual term ofthe exposure.

The absolute measure of increase in credit risk is used to capture instances where the PDs on exposures are relativelylow at initial recognition as these may increase by several multiples without representing a significant increase in creditrisk. Where PDs are relatively high at initial recognition, a relative measure is more appropriate in assessing whetherthere is a significant increase in credit risk, as the PDs increase more quickly.

For Corporate & Institutional Banking and Commercial Banking clients, the relative threshold is a 100 per centincrease in PD and the absolute change in PD is between 50-100 basis points.

For Retail Banking clients, the relative threshold is a 100 per cent increase in PD and the absolute change in PD isbetween 100-350 basis points depending on the product. Certain counties have a higher absolute threshold reflectingthe lower default rate within this portfolio compared with the Group’s other personal loan portfolios.

Private Banking clients are assessed qualitatively, based on a delinquency measure relating collateral top-ups orsell-downs.

Debt securities with an internal credit rating mapped to an investment grade equivalent are allocated to stage 1 and allother debt securities to stage 2.

Qualitative factors that indicate that there has been a significant increase in credit risk include processes linked tocurrent risk management, such as placing loans on non-purely precautionary Early Alert, or through delinquencymeasures.

The SICR thresholds have been calibrated based on the following principles:

• Stability – The thresholds are set to achieve a stable stage 2 population at a portfolio level, trying to minimisethe number of accounts moving back and forth between stage 1 and stage 2 in a short period of time

• Accuracy – The thresholds are set such that there is a materially higher propensity for stage 2 exposures toeventually default than is the case for stage 1 exposures

• Dependency from backstops – The thresholds are stringent enough such that a high proportion of accountstransfer to stage 2 due to movements in forward-looking PD rather than relying on backward-lookingbackstops such as arrears

• Relationship with business and product risk profiles – The thresholds reflect the relative risk differencesbetween different products, and are aligned to business processes

Qualitative criteriaQualitative factors that indicate there has been a significant increase in credit risk include processes linked to currentrisk management.

BackstopAcross all portfolios, accounts that are 30 or more days past due (DPD) on contractual payments of principal and/orinterest that have not been captured by the criteria above are considered to have experienced a significant increase incredit risk.

Expert credit judgement may be applied in assessing significant increase in credit risk to the extent that certain risksmay not have been captured by the models or through the above criteria. Such instances are expected to be rare, forexample due to events arising close to the reporting date.

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Corporate & Institutional Banking and Commercial Banking clients

Quantitative criteriaExposures are assessed based on both the absolute and the relative movement in the PD from origination to thereporting date as described above.

To account for the fact that the mapping between internal credit grades (used in the origination process) and PDs isnon-linear (e.g. a one-notch downgrade in the investment grade universe results in a much smaller PD increase than inthe sub-investment grade universe), the absolute thresholds have been differentiated by credit quality at origination,as measured by internal credit grades being investment grade or sub-investment grade.

Qualitative criteriaAll assets of clients that have been placed on Early Alert (for non-purely precautionary reasons) are deemed to haveexperienced a significant increase in credit risk.

An account is placed on non-purely precautionary Early Alert if it exhibits risk or potential weaknesses of a materialnature requiring closer monitoring, supervision or attention by management. Weaknesses in such a borrower’saccount, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of beingdowngraded. Indicators could include a rapid erosion of position within the industry, concerns over management’sability to manage operations, weak/deteriorating operating results, liquidity strain and overdue balances among otherfactors.

All assets of clients that have been assigned a CG12 rating, equivalent to ‘Higher Risk’, are deemed to haveexperienced a significant increase in credit risk. Accounts rated CG12 are managed by the GSAM unit. All Corporate& Institutional Banking and Commercial Banking clients are placed on CG12 when they are 30 DPD unless they aregranted a waiver through a strict governance process.

Retail Banking clients

Quantitative criteriaMaterial portfolios (defined as a combination of country and product, for example Hong Kong mortgages, Taiwancredit cards) for which a statistical model has been built are assessed based on both the absolute and relativemovement in the PD from origination to the reporting date as described above. For these portfolios, the originallifetime PD term structure is determined based on the original Application Score or Risk Segment of the client.

Qualitative criteriaAccounts that are 30 DPD that have not been captured by the quantitative criteria are considered to have experienceda significant increase in credit risk. For less material portfolios, which are modelled based on a roll-rate or loss-rateapproach, significant increase in credit risk is primarily assessed through the 30 DPD trigger.

Private Banking clientsFor Private Banking clients, significant increase in credit risk is assessed by referencing the nature and the level ofcollateral against which credit is extended (known as ‘Classes of Risk’).

Qualitative criteriaFor all Private Banking Classes, in line with risk management practice, an increase in credit risk is deemed to haveoccurred where margining or loan-to-value covenants have been breached.

For Class I assets, if these margining requirements have not been met within 30 days of a trigger, significant creditdeterioration is assumed to have occurred.

For Class I and Class III assets, a significant increase in credit risk is assumed to have occurred where the bank isunable to ‘sell down’ the applicable assets to meet revised collateral requirements within 5 days of a trigger.

Class II assets are typically unsecured or partially secured, or secured against illiquid collateral such as shares inprivate companies. Significant credit deterioration of these assets is deemed to have occurred when any Early Alerttrigger has been breached.

71


Debt Securities

Quantitative criteriaThe bank is utilising the low credit risk simplified approach. All debt securities with an internal credit rating mapped toan investment grade equivalent are allocated to stage 1 and all other debt securities are allocated to stage 2.

Qualitative criteriaDebt securities utilise the same qualitative criteria as the Corporate & Institutional Banking and Commercial Bankingclient segments, including being placed on Early Alert or being classified as credit grade 12.

Assessment of credit impaired financial assetsRetail Banking clientsThe core components in determining credit-impaired expected credit loss provisions are the value of gross charge offand recoveries. Gross charge off and/or loss provisions are recognised when it is established that the account isunlikely to pay through the normal process. Recovery of unsecured debt post credit-impairment is recognised basedon actual cash collected, either directly from clients or through the sale of defaulted loans to third-party institutions.Release of credit-impairment provisions for secured loans is recognised if the loan outstanding is paid in full (release offull provision), or the provision is higher than the loan outstanding (release of the excess provision. If the loan is paid tocurrent and remains in current for more than 180 days (1 year for forborne loans) the account will be transferred tostage 2.

Corporate & Institutional Banking, Commercial Banking and Private Banking ClientsCredit-impaired accounts are managed by the Group’s specialist recovery unit, Group Special Assets Management(GSAM) which is independent from its main businesses. Where any amount is considered irrecoverable, a stage 3credit-impairment provision is raised. This stage 3 provision is the difference between the loan-carrying amount andthe probability weighted present value of estimated future cash flows, reflecting a range of scenarios (typically thebest, worst and most likely recovery outcomes). Where the cash flows include realisable collateral, the values used willincorporate the impact of forward looking economic information.

The individual circumstances of each client are considered when GSAM estimates future cash flows and timing offuture recoveries which involve significant judgement. All available sources, such as cash flow arising from operations,selling assets or subsidiaries, realising collateral or payments under guarantees, are considered. In any decisionrelating to the raising of provisions, the Group attempts to balance economic conditions, local knowledge andexperience, and the results of independent asset reviews.

Write-offsWhere it is considered that there is no realistic prospect of recovering a portion of an exposure against which animpairment provision has been raised, that amount will be written off.

Governance and application of expert credit judgement in respect of expected credit lossesThe models used in determining expected credit losses are reviewed and approved by the Group Credit ModelAssessment Committee (CMAC) which is appointed by the Stress Testing Committee. CMAC has the responsibility toassess and approve the use of models and to review and approve all IFRS 9 interpretations related to models. CMACalso provides oversight on operational matters related to model development, performance monitoring and modelvalidation activities including standards, regulatory and Group Internal Audit matters.

Prior to submission to CMAC for approval, the models have been validated by Group Model Validation (GMV), afunction which is independent of the business and the model developers. GMV’s analysis comprises review of modeldocumentation, model design and methodology; data validation; review of model development and calibrationprocess; out-of-sample performance testing; and assessment of compliance review against IFRS 9 rules and internalstandards.

Key inputs into the calculation and resulting expected credit loss provisions are subject to review and approval by theIFRS 9 Impairment Committee which is appointed by the Group Risk Committee. The IFRS 9 Impairment Committeeconsists of senior representatives from Risk, Finance, Treasury and Group Economic Research. It meets twice everyquarter, once before the models are run to approve key inputs into the calculation, and once after the models are runto approve the expected credit loss provisions and any judgmental override that may be necessary.

72


The IFRS 9 Impairment Committee:

• Oversees the appropriateness of all Business Model Assessment and Solely Payments of Principal andInterest (SPPI) tests

• Reviews and approves expected credit loss for financial assets classified as stages 1, 2 and 3 for eachfinancial reporting period

• Reviews and approves stage allocation rules and thresholds

• Approves material adjustment in relation to expected credit loss for FVOCI and amortised cost financialassets

• Reviews, challenges and approves base macroeconomic forecasts (including the multiple scenario approach)that are utilised in the forward-looking expected credit loss computation

The IFRS 9 Impairment Committee is supported by an expert panel which reviews and challenges the full extendedversion of base case projections and multiple macroeconomic scenarios. The Expert Panel consists of members ofEnterprise Risk Management (which includes the Scenario Design team), Finance, Group Economic Research andcountry representatives of major jurisdictions.

Country risk (unaudited)Country risk is defined as the potential for default or losses due to political or economic events in a country. A keycomponent of Country risk is country cross-border risk, which is the risk that the Group will be unable to obtainpayment from counterparties on their contractual obligations as a result of actions taken by foreign governments,chiefly relating to convertibility and transferability of foreign currency.

The profile of the Group’s country cross-border exposures as at 30 June 2018 remained consistent with its strategicfocus on core franchise countries, and with the scale of the larger markets in which it operates.

Country cross-border exposure to China remains predominantly short-term (88 per cent of exposure had a tenor ofless than one year). During the first half of 2018, the Group’s cross-border exposure to China decreased, withapproximately half of the reduction attributed to a reduction in trade finance activities.

Country cross-border risk exposure to Hong Kong increased during the first half of 2018. Factors contributing to theincrease included a rise in medium-term corporate loans and growth in interbank placements.

Singapore’s cross-border exposure reduced during the first half of 2018 due to a reduction in outstandings to financialinstitutions and maturing short-term trade finance facilities.

The decrease in cross-border exposure to South Korea reflects a reduction in marketable securities held during thefirst half of 2018. South Korea’s export-driven economy has been affected by external conditions, such as increasedtrade tensions between the US and China and tightening US monetary policy.

The overall size of cross-border exposure to India reflects the size of the Group’s franchise in the country, as well asthe role the Group plays in providing support in overseas investment and trade flows that are supported by parentcompanies in India. The decrease in cross-border exposure to India in the first half of 2018 is driven by paydownacross some of the Group’s key clients, lower utilisation across trade limits, and successful closure of syndicationswhich resulted in exposure being brought down to agreed hold levels.

The lower United Arab Emirates cross-border exposures in the first half of 2018 is a result of a reduction in trade andlending activity which has evolved in line with the economic slowdown and downturn in business sentiment.

The increase in Saudi Arabia’s cross-border exposure in the first half of 2018 reflects rising sovereign andsovereign-related entity exposures.

Cross-border exposure to developed countries in which the Group does not have a major presence, predominantlyrelates to treasury and liquidity management activities, which can change significantly from period to period. Exposureto such markets also represents global corporate business for clients with interests in our footprint.

73


The table below, which is based on the Group’s internal country cross-border risk reporting requirements, showscross-border exposures that exceed 1 per cent of total Group assets.

30.06.18 31.12.17

Less thanone year$million

More thanone year$million

Total$million

Less thanone year$million

More thanone year$million

Total$million

China1 37,472 4,998 42,470 38,677 6,204 44,881Hong Kong1 13,860 7,637 21,497 11,685 7,964 19,649United States 9,807 9,153 18,960 10,068 9,524 19,592Singapore 12,410 4,875 17,285 13,555 5,955 19,510South Korea 12,847 4,347 17,194 14,513 4,331 18,844India 10,512 5,568 16,080 11,687 5,819 17,506United Arab Emirates 7,817 7,607 15,424 7,932 8,341 16,273Germany 3,065 5,960 9,025 3,022 4,505 7,527Saudi Arabia 2,689 4,956 7,645 1,820 2,967 4,787Australia 2,988 4,299 7,287 1,916 4,045 5,961

1 Cross-border exposures for 31.12.17 (IAS 39) relating to China and Hong Kong have been restated to reflect methodology amendments:China – Less than 1 year bucket restated from $40,351 million to $38,677 million. Consequently the Total is restated from $46,455 million to $44,881 million.Hong Kong – More than 1 year bucket restated from $7,867 million to $7,964 million. Consequently the Total is restated from $19,552 million to $19,649 million.

Market risk

HighlightsDaily VaR – trading and non-tradingMarket risk is the potential for loss of economic value due to adverse changes in financial market rates or prices. TheGroup’s exposure to market risk arises predominantly from these sources:

• Trading book: the Group provides clients access to financial markets, facilitation of which entails the Grouptaking moderate market risk positions. All trading teams support client activity; there are no proprietarytrading teams. Hence, income earned from market risk-related activities is primarily driven by the volume ofclient activity rather than risk-taking

• Non-trading book:

– The Treasury Markets desk is required to hold a liquid assets buffer, much of which is held in high-qualitymarketable debt securities

– The Group has capital invested and related income streams denominated in currencies other than US dollars. Tothe extent that these are not hedged, the Group is subject to structural foreign exchange risk which is reflected inreserves

– The primary categories of market risk for the Group are:

• Interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest rateoptions

• Foreign exchange rate risk: arising from changes in currency exchange rates and implied volatilities on foreignexchange options

• Commodity risk: arising from changes in commodity prices and implied volatilities on commodity optionscovering energy, precious metals, base metals and agriculture

• Equity risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilitieson related options

• Credit spread risk: arising from changes in the credit spread of the Group’s derivative counterparties throughCVA accounting

74


Market risk changesThe average level of total trading and non-trading VaR in the first half of 2018 was 22 per cent lower than in the firsthalf of 2017 and 19 per cent lower than in the second half of 2017. The actual level of total trading and non-tradingVaR at the end of the first half of 2018 was lower than at the end of the first half of 2017 by 23 per cent and lower thanat the end of the second half of 2017 by 12 per cent. The reduction in VaR over the periods is primarily driven by thenon-trading business reducing the duration of its portfolio.

For the trading book, the average level of VaR in the first half of 2018 was lower than in the first half of 2017 by 22 percent and lower than in the second half of 2017 by 11 per cent. Trading activities have remained relatively unchangedand client-driven. The marginal reduction is primarily due to a decrease in the Group’s bond inventory.

Daily value at risk (VaR at 97.5%, one day)

Trading and non-trading


Average$million

High1

$millionLow1

$millionActual2

$millionAverage$million

High1

$millionLow1

$millionActual2


High1

$millionLow1

$millionActual2

$million

Interest rate risk3 19.1 22.8 16.9 17.7 22.1 25.5 18.1 18.7 23.0 28.5 19.7 23.4Foreign exchange risk 4.9 8.6 3.1 3.9 5.5 12.3 3.0 6.0 5.5 11.0 3.2 4.7Commodity risk 1.2 1.8 0.9 1.8 1.2 2.0 0.6 1.0 1.2 1.7 0.9 1.0Equity risk 6.2 6.8 4.1 4.7 7.7 8.1 6.4 6.7 7.7 8.4 7.2 7.6Total4 20.4 24.4 17.5 19.6 25.1 29.3 20.3 22.3 26.3 32.4 23.5 25.6

Trading5


Average$million

High1

$millionLow1

$millionActual2


High1

$millionLow1

$millionActual2


High1

$millionLow1

$millionActual2

$million

Interest rate risk3 8.6 11.7 6.4 6.8 9.8 13.1 7.7 8.5 10.5 12.9 8.8 9.9Foreign exchange risk 4.9 8.6 3.1 3.9 5.5 12.3 3.0 6.0 5.5 11.0 3.2 4.7Commodity risk 1.2 1.8 0.9 1.8 1.2 2.0 0.6 1.1 1.2 1.7 0.9 1.0Equity risk 0.1 0.1 – 0.1 0.2 0.4 0.1 0.1 0.1 0.2 0.1 0.2Total4 10.4 13.8 7.5 8.1 11.7 15.5 9.4 12.1 13.3 17.2 11.0 12.1

Non-trading


Average$million

High1

$millionLow1

$millionActual2


High1

$millionLow1

$millionActual2


High1

$millionLow1

$millionActual2

$million

Interest rate risk3 15.8 17.7 14.1 15.1 19.3 23.1 14.4 14.4 19.7 22.8 17.7 21.9Equity risk 6.2 6.8 4.1 4.6 7.6 8.0 6.2 6.6 7.6 8.1 7.2 7.5

Total4 16.6 18.8 15.3 16.0 20.9 23.8 16.3 16.3 22.4 27.6 19.6 21.6

1 Highest and lowest VaR for each risk factor are independent and usually occur on different days2 Actual one day VaR at period end date3 Interest rate risk VaR includes credit spread risk arising from securities accounted as fair value through profit or loss (‘FVPL’) or as fair value through other comprehensive income

(‘FVOCI’)4 The total VaR shown in the tables above is not a sum of the component risks due to offsets between them5 Trading book for market risk is defined in accordance with the EU Capital Requirements Regulation (CRDIV/CRR) Part 3 Title I Chapter 3 which restricts the positions permitted in the

trading book6 The total trading VaR for 6 months ended 30.06.2017 has been restated from (Average: 12.6, High: 15.7, Low: 9.8, Actual: 11.7) to reflect the impact of XVA

Risks not in VaR (unaudited)In the first half of 2018, the main market risk not reflected in VaR was the currency risk where the exchange rate iscurrently pegged or managed. The historical one-year VaR observation period does not reflect the future possibility ofa change in the currency regime such as sudden de-pegging. The other material market risk not reflected in VaR wasassociated with basis risks where historical market price data for VaR is sometimes more limited, and thereforeproxied, generating a potential basis risk. Additional capital is set aside to cover such ‘risks not in VaR’. For furtherdetails on market risk capital see the market risk section of the Standard Chartered PLC Pillar 3 Disclosures for 30June 2018.

75


Backtesting (unaudited)Regulatory backtesting is applied at both Group and Solo levels. In the 12 months to 30 June 2018, there has beenone negative exception at Group level.

This exception occurred on 18 December 2017 due to yield curve moves in Nigeria. The Central Bank of Nigeriarestarted its liquidity management open market operations unexpectedly, filling Nigerian treasury bill auctions belowthe lowest bid yields. This move caused the market to sell off and Nigerian Naira yields to rise sharply. One exceptionin a year due to market events is within the ‘green zone’ applied internationally to internal models by bank supervisors(Basel Committee on Banking Supervision: ‘Supervisory framework for the use of backtesting in conjunction with theinternal models approach to market risk capital requirements’, January 1996).

The graph below illustrates the performance of the VaR model used in capital calculations. It compares the 99percentile loss confidence level given by the VaR model with the Hypothetical profit & loss (P&L) of each day given theactual market movement without taking into account any intra-day trading activity.

Average daily income earned from market risk related activities1




TradingInterest rate risk 4.3 3.0 4.0Foreign exchange risk 3.8 3.7 3.7Commodity risk 0.8 0.6 0.6Equity risk – – –

Total 8.9 7.3 8.3

Non-tradingInterest rate risk 2.9 1.7 3.1Equity risk (0.3) 0.6 –

Total 2.6 2.3 3.1

1 Reflects total product income which is the sum of client income and own account income. Includes elements of trading income, interest income and other income which aregenerated from market risk related activities. XVA income is included under interest rate risk

Liquidity and funding riskLiquidity and funding risk is the potential that the Group does not have sufficient financial resources or stable sourcesof funding in the medium or long term, to meet its obligations as they fall due, or can access these financial resourcesonly at excessive cost.

The Group’s liquidity and funding risk framework requires each country to ensure that it operates within predefinedliquidity limits and remain in compliance with Group liquidity policies and practices, as well as local regulatoryrequirements.

The Group achieves this through a combination of setting risk appetite and associated limits, policy formation, riskmeasurement and monitoring, prudential and internal stress testing, governance and review.

For further information on the Group’s liquidity and funding risk framework, refer to the Risk Management Approach inthe 2017 Annual Report.

Liquidity and funding risk metricsThe Group monitors key liquidity metrics regularly, both on a country basis and in aggregate across the Group.

The following liquidity and funding board risk appetite metrics define the maximum amount and type of risk that theGroup is willing to assume in pursuit of its strategy: liquidity coverage ratio (LCR), liquidity stress survival horizons,external wholesale borrowing and advances-to-deposits ratio.

76


Liquidity coverage ratio (LCR) (unaudited)The LCR is a regulatory requirement set to ensure that the Group has sufficient unencumbered high quality liquidassets to meet its liquidity needs in a 30-calendar-day liquidity stress scenario.

The Group monitors and reports its liquidity position under European Commission Delegated Regulation 2015/61 andhas maintained its liquidity position above the prudential requirement.

At the reporting date, the Group LCR was 151 per cent (2017: 146 per cent) with a prudent surplus to bothBoard-approved risk appetite and regulatory requirements. The ratio increased 5 per cent in the first half of 2018largely due to an increase in the overall sizeof our liquidity buffer as we focused on growing the quality of our funding base.

Liquidity coverage ratio30.06.18$million

31.12.17$million

Liquidity buffer 147,575 132,251Total net cash outflows 97,886 90,691Liquidity coverage ratio 151% 146%

Stressed coverage (unaudited)The Group intends to maintain a prudent and sustainable funding and liquidity position, in all presence countries andcurrencies, such that it can withstand a severe but plausible liquidity stress.

The Group’s internal liquidity stress testing framework covers the following stress scenarios:

Standard Chartered-specific – This scenario captures the liquidity impact from an idiosyncratic event affectingStandard Chartered only, i.e. the rest of the market is assumed to operate normally.

Market-wide – This scenario captures the liquidity impact from a market-wide crisis affecting all participants in acountry, region or globally.

Combined – This scenario assumes both Standard Chartered-specific and market-wide events affecting the Groupsimultaneously and hence is the most severe scenario.

All scenarios include, but are not limited to, modelled outflows for retail and wholesale funding, off-balance sheetfunding risk, cross currency funding risk, intraday risk, franchise risk and risks associated with a deterioration of afirm’s credit rating.

Stress testing results show that a positive surplus was maintained under all scenarios at 30 June 2018 i.e. therespective countries included were able to survive for a period of time as defined under each scenario. The combinedscenario at 30 June 2018 showed the Group maintaining liquidity resources to survive greater than 60 days, as per itsrisk appetite. The results take into account currency convertibility and portability constraints across all major presencecountries.

External wholesale borrowingThe Board sets a risk limit to prevent excessive reliance on wholesale borrowing. Limits are applied to all branchesand operating subsidiaries in the Group and as at the reporting date the Group remained within the Board-approvedrisk appetite.

77


Advances-to-deposits ratioThis is defined as the ratio of total loans and advances to customers relative to total customer accounts. Anadvances-to-deposits ratio of below 100 per cent demonstrates that customer deposits exceed customer loans as aresult of the emphasis placed on generating a high level of funding from customers.

The advances-to-deposits ratio decreased to 68.2 per cent over the first half of 2018 (2017: 69.4 per cent).

Loans and advances to customers have increased 4 per cent since the end of 2017 to $297 billion. This growth waslargely due to higher Corporate Finance balances in Hong Kong, an increase in Transaction Banking overdrafts andgrowth in the Group’s repo business as it continued to benefit from its deep client franchise and balance sheetstrength. This increase was partly offset by a reduction in retail lending primarily due to unfavourable foreign exchangemovements in Singapore, Korea and India.

Customer accounts have also increased 6 per cent from the end of 2017 to $435 billion. The Group has focused onhigh quality liquidity with an emphasis on time deposits given their high liquidity and regulatory value. The Group’ssecured borrowing also grew significantly over the period. This increase was partially offset by a reduction inTransaction Banking current and savings account balances.

Advances-to-deposits ratio30.06.18$million

31.12.17$million

Loans and advances to customers1,2 296,719 285,553Customer accounts3 435,014 411,724Advances-to-deposits ratio 68.2% 69.4%

1 See note 12 of the financial statements2 Includes reverse repurchase agreements and other similar secured lending of $37,909 million3 Includes repurchase agreements and other similar secured borrowing of $46,675 million

Net stable funding ratio (NSFR) (unaudited)On 23 November 2016 the European Commission, as part of a package of risk-reducing measures, proposed abinding requirement for stable funding (Net Stable Funding Ratio (NSFR)) at European Union level. The proposal aimsto implement the European Banking Authority’s interpretation of the Basel standard on NSFR (BCBS295).

Pending implementation of the final rules, the Group continues to monitor NSFR in line with BCBS295. At the lastreporting date, the Group NSFR remained above 100 per cent.

Liquidity pool (unaudited)The liquidity value of the Group’s LCR eligible liquidity pool at the reporting date was $148 billion. The figures in thebelow table account for haircuts, currency convertibility and portability constraints, and therefore are not directlycomparable with the consolidated balance sheet. The pool is held to offset stress outflows as defined in EuropeanCommission Delegated Regulation 2015/61 covering both Pillar 1 and Pillar 2 risks along with internal Board approvedrisk appetite.

LCR eligible securities, as defined under LCR Delegated Act rules, fall into three categories: Level 1, Level 2A, andLevel 2B liquid assets. Level 1 liquid assets, which are of the highest quality and deemed the most liquid, are subjectto no or little discount (or haircuts) to their market value and may be largely used without limit in the liquidity buffer,with the exception of Level 1 covered bonds.

Level 2A and 2B securities are recognised as being relatively stable and reliable sources of liquidity, but not to thesame extent as Level 1 assets. LCR rules therefore set a 40 per cent composition cap on the combined amount ofLevel 2A and Level 2B that firms may hold in their total eligible liquidity buffer. Level 2B liquid assets, which areconsidered less liquid and more volatile than Level 2A liquid assets, are subject to large and varying haircuts and maynot exceed 15 per cent of the total eligible HQLA.

78


The pool increased $15 billion in the first half of 2018, reflecting overall balance sheet growth with surplus liquiditydeployed primarily in Level 1 and Level 2A securities held in Europe & Americas and Greater China & North Asia. Themajority of the Group’s liquidity pool is held in Level 1 assets (92 per cent) in the form of unencumbered central bankreserves and high quality Level 1 securities. The remainder is made up of Level 2A (7 per cent) and Level 2B (1 percent) securities.

30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East


$millionTotal

$million

Level 1 securitiesCash and balances at central banks 12,679 2,318 1,376 33,580 49,953Central banks, governments and public sector entities 32,370 10,775 991 29,266 73,402Multilateral development banks and international organisations 2,359 676 184 7,288 10,507Other – – – 1,745 1,745

Total Level 1 securities 47,408 13,769 2,551 71,879 135,607

Level 2A securities 2,592 1,051 105 6,043 9,791Level 2B securities – 383 – 1,794 2,177

Total LCR eligible assets 50,000 15,203 2,656 79,716 147,575

31.12.17


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$millionTotal

$million

Level 1 securitiesCash and balances at central banks 13,779 2,400 1,708 33,191 51,078Central banks, governments and public sector entities 28,187 12,265 1,064 24,464 65,980Multilateral development banks and international organisations – 563 159 8,568 9,290Other – – – 130 130Total Level 1 securities 41,966 15,228 2,931 66,353 126,478

Level 2A securities 2,234 825 113 1,147 4,319Level 2B securities – 246 3 1,206 1,455Total LCR eligible assets 44,200 16,299 3,047 68,706 132,252

Encumbrance (unaudited)Encumbered assetsEncumbered assets represent on-balance sheet assets pledged or subject to any form of arrangement to secure,collateralise or credit enhance a transaction from which it cannot be freely withdrawn. Cash collateral pledged againstderivatives and Hong Kong government certificates of indebtedness, which secure the equivalent amount of HongKong currency notes in circulation, are included within Other assets.

Unencumbered – readily available for encumbranceUnencumbered assets that are considered by the Group to be readily available in the normal course of business tosecure funding, meet collateral needs, or be sold to reduce potential future funding requirements, are not subject toany restrictions on their use for these purposes.

Unencumbered – other assets capable of being encumberedUnencumbered assets that, in their current form, are not considered by the Group to be readily realisable in thenormal course of business to secure funding, meet collateral needs, or be sold to reduce potential future fundingrequirements, are not subject to any restrictions on their use for these purposes. Included within this category areloans and advances which would be suitable for use in secured funding structures such as securitisations.

Unencumbered – cannot be encumberedUnencumbered assets that have not been pledged and the Group has assessed cannot be used to secure funding,meet collateral needs, or be sold to reduce potential future funding requirements.

79


Derivatives, reverse repurchase agreements and stock lendingThese assets are shown separately as these on-balance sheet amounts cannot be pledged. However, these assetscan give rise to off-balance sheet collateral which can be used to raise secured funding or meet additional fundingrequirements.

The following table provides a reconciliation of the Group’s encumbered assets to total assets.

Assets$million

30.06.18

Assets encumbered as a result oftransactions with counterparties

other than central banksOther assets (comprising assets encumbered at

the central bank and unencumbered assets)

As a result ofsecuritisations

$millionOther

$millionTotal

$million

Assetspositioned at the

central bank (iepre-positioned

plusencumbered)

$million

Assets not positioned at the central bank

Total$million

Readilyavailable for

encumbrance$million

Other assetsthat arecapableof being

encumbered$million

Derivativesand reverserepo/stock

lending$million

Cannot beencumbered

$million

Cash and balancesat central banks 58,213 – – – 9,495 48,718 – – – 58,213Derivative financialinstruments 51,780 – – – – – – 51,780 – 51,780Loans and advancesto banks1 85,359 – – – – 42,583 7,407 26,512 8,857 85,359Loans and advancesto customers1 296,719 9 – 9 – – 238,597 37,909 20,204 296,710Investment securities1 144,356 – 14,148 14,148 291 86,791 32,558 – 10,568 130,208Other assets 39,068 – 15,706 15,706 – – 13,019 – 10,343 23,362Current tax assets 366 – – – – – – – 366 366Prepayments andaccrued income 2,418 – – – – – 1,252 – 1,166 2,418Interests in associatesand joint ventures 2,345 – – – – – – – 2,345 2,345Goodwill andintangible assets 4,974 – – – – – 35 – 4,939 4,974Property, plantand equipment 7,326 – – – – – 882 – 6,444 7,326Deferred tax assets 1,290 – – – – – – – 1,290 1,290Assets classifiedas held for sale 660 – – – – – – – 660 660

Total 694,874 9 29,854 29,863 9,786 178,092 293,750 116,201 67,182 665,011

1 Includes assets held at fair value through profit or loss and reverse repurchase agreements and other similar secured lending

80


Assets$million

31.12.17(IAS 39)

Assets encumbered as a result oftransactions with counterparties other

than central banksOther assets (comprising assets encumbered at

the central bank and unencumbered assets)

As a result ofsecuritisations

$millionOther

$millionTotal

$million

Assetspositioned at

the centralbank (ie

pre-positionedplus

encumbered)$million

Assets not positioned at the central bank

Total$million

Readilyavailable for

encumbrance$million

Other assetsthat arecapableof being

encumbered$million

Derivativesand reverserepo/stock

lending$million

Cannot beencumbered

$million

Cash and balancesat central banks 58,864 – – – 9,761 49,103 – – – 58,864Derivative financialinstruments 47,031 – – – – – – 47,031 – 47,031Loans and advancesto banks1 81,325 – – – – 47,380 5,333 21,260 7,352 81,325Loans and advancesto customers1 285,553 11 – 11 – – 232,328 33,928 19,286 285,542Investment securities1 138,187 – 8,213 8,213 178 91,928 29,967 – 7,901 129,974Other assets 33,490 – 14,930 14,930 – – 11,604 – 6,956 18,560Current tax assets 491 – – – – – – – 491 491Prepayments andaccrued income 2,307 – – – – – 1,503 – 804 2,307Interests in associatesand joint ventures 2,307 – – – – – – – 2,307 2,307Goodwill andintangible assets 5,013 – – – – – 352 – 4,661 5,013Property, plantand equipment 7,211 – – – – – 1,148 – 6,063 7,211Deferred tax assets 1,177 – – – – – – – 1,177 1,177Assets classifiedas held for sale 545 – – – – – – – 545 545Total 663,501 11 23,143 23,154 9,939 188,411 282,235 102,219 57,543 640,347

1 Includes assets held at fair value through profit or loss and reverse repurchase agreements and other similar secured lending

The Group received $81,367 million (2017: $72,982 million) as collateral under reverse repurchase agreements thatwas eligible for repledging; of this the Group sold or repledged $42,028 million (2017: $34,018 million) underrepurchase agreements.

81


Liquidity analysis of the Group’s balance sheetContractual maturity of assets and liabilitiesThe following table presents assets and liabilities by maturity groupings based on the remaining period to thecontractual maturity date as at the balance sheet date on a discounted basis. Contractual maturities do notnecessarily reflect actual repayments or cashflow.

Within the tables below, cash and balances with central banks, interbank placements and investment securities thatare available-for-sale are used by the Group principally for liquidity management purposes.

As at the reporting date, assets remain predominantly short-dated, with 61 per cent maturing in under one year. TheGroup’s less-than-three-month cumulative net funding gap increased from the previous period, largely due to anincrease in customer accounts as the Group focused on improving the quality of its deposit base. In practice, thesedeposits are recognised as stable and have behavioural profiles that extend beyond their contractual maturities.

30.06.18

One monthor less

$million

Between onemonth and

three months$million

Betweenthree months

and sixmonths$million

Betweensix months

and ninemonths$million

Between ninemonths and

one year$million

Betweenone year and

two years$million

Betweentwo years and

five years$million

More thanfive years

and undated$million

Total$million

AssetsCash and balances atcentral banks 48,718 – – – – – – 9,495 58,213Derivative financial instruments 8,465 8,125 5,249 4,554 3,334 5,093 8,151 8,809 51,780Loans and advances to banks1,2 39,890 22,424 10,618 4,590 4,260 1,766 1,457 354 85,359Loans and advancesto customers1,2 79,015 39,057 15,878 8,659 10,678 19,551 37,237 86,644 296,719Investment securities 12,011 19,976 16,101 12,663 12,848 24,297 30,132 16,328 144,356Other assets 25,946 5,454 2,347 88 329 40 140 24,103 58,447

Total assets 214,045 95,036 50,193 30,554 31,449 50,747 77,117 145,733 694,874

LiabilitiesDeposits by banks1,3 32,275 2,177 960 785 492 353 305 52 37,399Customer accounts1,4 328,121 52,370 25,043 10,602 11,165 3,470 1,512 2,731 435,014Derivative financial instruments 9,114 8,138 5,470 4,713 3,559 5,511 8,480 7,977 52,962Senior debt – 75 1,904 1,301 2,300 4,843 1,584 6,470 18,477Other debt securities in issue1 5,975 9,772 9,322 1,447 991 1,551 687 4,273 34,018Other liabilities 27,583 5,922 3,474 696 643 646 775 10,730 50,469Subordinated liabilities andother borrowed funds 24 17 – – – 755 3,283 10,968 15,047

Total liabilities 403,092 78,471 46,173 19,544 19,150 17,129 16,626 43,201 643,386

Net liquidity gap (189,047) 16,565 4,020 11,010 12,299 33,618 60,491 102,532 51,488

1 Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss,see note 12

2 Loans and advances include reverse repurchase agreements and other similar secured lending borrowing of $64.4 billion3 Deposits by banks include repurchase agreements and other similar secured borrowing of $6.2 billion4 Customer accounts include repurchase agreements and other similar secured lending borrowing of $46.7 billion

82


31.12.17

One monthor less

$million

Betweenone monthand three

months$million

Betweenthree months


Betweensix months


Betweennine monthsand one year

$million

Betweenone year and

two years$million

Betweentwo years

and fiveyears

$million

More thanfive years

and undated$million

Total$million

AssetsCash and balances atcentral banks 49,103 – – – – – – 9,761 58,864Derivative financial instruments 6,284 7,706 5,930 3,537 2,601 5,427 7,111 8,435 47,031Loans and advances to banks1,2 36,548 21,238 12,042 4,299 3,612 1,588 1,386 612 81,325Loans and advancesto customers1,2 87,794 32,618 17,459 11,357 8,545 17,500 37,237 73,043 285,553Investment securities 14,185 18,208 13,692 11,213 9,145 22,369 31,660 17,715 138,187Other assets 19,349 4,466 2,521 105 247 138 127 25,588 52,541

Total assets 213,263 84,236 51,644 30,511 24,150 47,022 77,521 135,154 663,501

LiabilitiesDeposits by banks1,3 29,365 2,484 1,437 530 730 154 135 651 35,486Customer accounts1,4 327,434 37,178 19,716 10,775 9,321 3,115 1,746 2,439 411,724Derivative financial instruments 8,018 8,035 6,068 3,544 2,685 5,057 7,794 6,900 48,101Senior debt 67 273 1,801 53 1,937 5,053 4,747 5,585 19,516Other debt securities in issue1 4,139 10,616 9,954 2,005 779 1,091 794 4,508 33,886Other liabilities 20,428 5,988 3,672 671 303 696 897 13,150 45,805Subordinated liabilities andother borrowed funds – 116 1,382 – – – 3,887 11,791 17,176


Net liquidity gap (176,188) 19,546 7,614 12,933 8,395 31,856 57,521 90,130 51,807

1 Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss,see note 12

2 Loans and advances include reverse repurchase agreements and other similar secured lending borrowing of $55.2 billion3 Deposits by banks include repurchase agreements and other similar secured borrowing of $3.8 billion4 Customer accounts include repurchase agreements and other similar secured lending borrowing of $36.0 billion

Behavioural maturity of financial assets and liabilitiesThe cash flows presented in the previous section reflect the cash flows that will be contractually payable over theresidual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actualrepayments or cash flow. In practice, certain assets and liabilities behave differently from their contractual terms,especially for short-term customer accounts, credit card balances and overdrafts, which extend to a longer periodthan their contractual maturity. On the other hand, mortgage balances tend to have a shorter repaymentperiod than their contractual maturity date. Expected customer behaviour is assessed and managed on a countrybasis using qualitative and quantitative techniques, including analysis of observed customer behaviour over time.

83


Maturity of financial liabilities on an undiscounted basisThe following table analyses the contractual cash flows payable for the Group’s financial liabilities by remainingcontractual maturities on an undiscounted basis. The financial liability balances in the table below will not agree to thebalances reported in the consolidated balance sheet as the table incorporates all contractual cash flows, on anundiscounted basis, relating to both principal and interest payments. Derivatives not treated as hedging derivativesare included in the “On demand” time bucket and not by contractual maturity.

Within the ‘More than five years and undated’ maturity band are undated financial liabilities, all of which relate tosubordinated debt, on which interest payments are not included as this information would not be meaningful given theinstruments are undated. Interest payments on these instruments are included within the relevant maturities up to fiveyears.

30.06.18

One monthor less

$million


months$million

Betweenthree months


Betweensix months



$million

Betweenone year and

two years$million

Betweentwo years

and fiveyears

$million

More thanfive years

and undated$million

Total$million

Deposits by banks 32,424 2,200 983 799 501 378 322 54 37,661Customer accounts 328,393 52,643 26,110 10,765 11,344 3,546 1,644 3,273 437,718Derivative financial instruments 52,320 61 90 3 1 1 95 391 52,962Debt securities in issue 5,987 9,845 11,395 2,765 3,552 6,722 2,856 12,244 55,366Subordinated liabilities andother borrowed funds 91 133 341 81 504 1,761 11,832 32,632 47,375Other liabilities 25,885 5,931 3,491 706 642 862 769 11,283 49,569


31.12.17 (IAS 39)

One monthor less

$million


months$million

Betweenthree months


Betweensix months



$million

Betweenone year and

two years$million

Betweentwo years

and fiveyears

$million

More thanfive years

and undated$million

Total$million

Deposits by banks 29,427 2,497 1,460 545 743 160 150 697 35,679Customer accounts 327,501 37,353 20,720 10,901 9,463 3,178 1,840 2,919 413,875Derivative financial instruments1 47,267 – 3 – 153 166 246 266 48,101Debt securities in issue 4,287 10,888 11,878 2,141 2,876 6,550 6,163 11,769 56,552Subordinated liabilities andother borrowed funds 126 207 1,490 210 166 657 3,726 19,356 25,938Other liabilities 20,800 6,052 3,676 681 324 720 929 11,241 44,423


1 Derivatives are on a discounted basis

84


Interest Rate Risk in the Banking Book (unaudited)The following table provides the estimated impact on the Group’s Earnings of a 50 basis point parallel shock (up anddown) across all yield curves. The sensitivities shown represent the estimated change in base case projected netinterest income (NII), plus the change in interest rate implied income and expense from FX swaps used to manageBanking Book currency positions, under the two interest rate shock scenarios.

The interest rate sensitivities are indicative and based on simplified scenarios, estimating the aggregate impact of aninstantaneous 50 basis point parallel shock across all yield curves over a one-year horizon, including the time taken toimplement changes to pricing before becoming effective. The assessment assumes that non-interest rate sensitiveaspects of the size and mix of the balance sheet remain constant and that there are no specific management actionsin response to the change in rates. No assumptions are made in relation to the impact on credit spreads in a changingrate environment.

Significant modelling and behavioural assumptions are made regarding scenario simplification, market competition,pass-through rates, asset and liability re-pricing tenors, and price flooring. In particular, the assumption that interestrates of all currencies and maturities shift by the same amount concurrently, and that no actions are taken to mitigatethe impacts arising from this are considered unlikely. Reported sensitivities will vary over time due to a number offactors including changes in balance sheet composition, market conditions, customer behaviour and riskmanagement strategy and should therefore not be considered an income or profit forecast.

30.06.18

USD bloc$million

HKD, SGD &KRW bloc

$million

Othercurrency bloc

$millionTotal

$million

+ 50 basis points 90 130 80 300- 50 basis points (80) (100) (80) (260)

Estimated one-year impact to earnings from a parallel shift in yield curves at the beginning of the period of:

31.12.17

USD bloc$million

HKD, SGD &KRW bloc

$million

Othercurrency bloc

$millionTotal

$million

+ 50 basis points 70 120 140 330- 50 basis points (50) (100) (140) (290)

As at 30 June 2018, the Group estimates the one-year impact of an instantaneous, parallel increase across all yieldcurves of 50 basis points to be an earnings benefit of $300 million. The corresponding impact from a parallel decreaseof 50 basis points would result in an earnings reduction of $260 million.

The benefit from rising interest rates is primarily from reinvesting at higher yields and from assets re-pricing faster andto a greater extent than deposits. The current estimate for USD sensitivity has reduced on an underlying basis sinceDecember 2017 on rising deposit sensitivity to changes in interest rates.

The reported USD sensitivity has increased due to short term currency management, with an offsetting reduction inthe sensitivity for other currencies.

The USD sensitivity is impacted by the dampening effect due to the asymmetry of funding Trading Book assets withBanking Book liabilities. The sensitivities include the cost of Banking Book liabilities used to fund the Trading Book,however the revenue associated with the Trading Book positions is recognised in net trading income. This asymmetryin both the up and down scenarios should be broadly offset within total operating income.

Operational risk (unaudited)Operational risks arise from the broad scope of activities carried out across the Group. Risks associated with theseactivities are mapped into a Group Process Universe where a standardised operational risk management approach isapplied to mitigate the risks. We benchmark practices against industry standards and regulatory requirements.

Operational risk profileThe operational risk profile is the Group’s overall exposure to operational risk at a given point in time, covering allapplicable operational risk sub-types. The operational risk profile comprises both operational risk events and lossesthat have already occurred and the current exposures to operational risks which, at an aggregate level, includes theconsideration of top risks and emerging risks.

Other principal risks (unaudited)Losses arising from our other principal risks (compliance, conduct, reputational, information and cyber security andfinancial crime) would be captured under operational losses.

85

Standard Chartered PLC – Capital review

Capital reviewThe Capital review provides an analysis of the Group’s capital and leverage position and requirements.

Capital summary

The Group’s capital and leverage position is managed within the Board-approved risk appetite. The Group is wellcapitalised with low leverage and high levels of loss-absorbing capacity.

Capital, leverage and RWA 30.06.18 31.12.17

CET1 capital % 14.2 13.6Tier 1 capital % 16.6 16.0Total capital % 21.3 21.0UK leverage % 5.8 6.0RWA ($million) 271,867 279,748

The Group’s Common Equity Tier 1 (CET1) capital and Tier 1 leverage position were ahead of both the currentrequirements and the expected end-state requirements for 2019. For further detail see the half year 2018 StandardChartered PLC Pillar 3 Disclosures section on Capital.

The Group’s current Pillar 2A requirement is 3.1 per cent of RWA of which at least 1.7 per cent must be held in CET1.This requirement is expected to vary over time.

Based on the Group’s current Pillar 2A requirement, the Group’s minimum requirement for own funds and eligibleliabilities (MREL) is expected to be 16.0 per cent of RWA in 2019 rising to 19.1 per cent of RWA in 2020 and 22.2 percent of RWA from 1 January 2022. The Group’s combined buffer (comprising the capital conservation, globalsystemically important institution (G-SII) and countercyclical buffers) sits above its MREL requirement, resulting in atotal loss-absorbing capacity requirement of 26.0 per cent of RWA from 1 January 2022 based on the Group’s CRD IVcapital buffers that are currently known. The Group estimates that its MREL position was around 26.4 per cent ofRWA and around 9.6 per cent of leverage exposure at 30 June 2018.

The Group continued its programme of MREL issuance from its holding company in the first half of 2018, issuing $1.9billion of MREL eligible securities across Tier 2 and senior debt during the period including the Group’s inauguralissuance of US dollar callable senior notes. As part of its proactive approach to capital management, the Groupsuccessfully conducted a liability management exercise in respect of a number of its GBP denominated subordinatedand senior securities.

Regulatory update

The European Commission is proposing amendments to the Capital Requirements Regulation, CRD IV, the BankRecovery and Resolution Directive and the Single Resolution Mechanism Regulation. Any proposed reforms remainsubject to change and until the proposals are in final form it is uncertain how they will affect the Group.

In February 2018, the Group implemented changes to the loss given default (LGD) models for certain corporate andinstitutional exposures. These changes reflect the PRA’s guidance on LGD estimates for low default portfolios andinclude the application of various LGD floors based on the Foundation IRB approach. These changes did notmaterially impact the Group’s CET1 ratio.

The Group continues to engage on a proactive basis with the PRA in the review of its risk models, including furtherLGD changes to product specific models. These changes are not currently expected to materially impact the CET1ratio, however the timing and exact impact will depend on the final outcome of the discussions and is subject to PRAapproval.

The Group remains a G-SII, with a 1.0 per cent G-SII CET1 buffer which phases in at a rate of 0.25 per cent per yearand will be fully implemented by 1 January 2019. The Standard Chartered PLC 2017 G-SII disclosure is published at:http://investors.sc.com/fullyearresults

In line with previous guidance, the decrease in the CET1 capital ratio on adoption of the IFRS 9 accounting standardwas around 15 basis points after considering the offset against existing regulatory expected losses. Under transitionalrules, the day one impact on the CET1 ratio was negligible.

86


Capital ratios (unaudited)30.06.18 31.12.17

CET1 14.2% 13.6%Tier 1 capital 16.6% 16.0%Total capital 21.3% 21.0%

CRD IV Capital base

30.06.18$million

31.12.17$million

CET1 instruments and reservesCapital instruments and the related share premium accounts 5,607 5,603Of which: share premium accounts 3,957 3,957Retained earnings 25,849 25,316Accumulated other comprehensive income (and other reserves) 11,989 12,766Non-controlling interests (amount allowed in consolidated CET1) 695 850Independently reviewed interim and year-end profits 1,557 1,227Foreseeable dividends net of scrip (453) (399)

CET1 capital before regulatory adjustments1 45,244 45,363CET1 regulatory adjustmentsAdditional value adjustments (prudential valuation adjustments) (496) (574)Intangible assets (net of related tax liability) (4,991) (5,112)Deferred tax assets that rely on future profitability (excludes those arising from temporary differences) (129) (125)Fair value reserves related to net losses on cash flow hedges (1) 45Deduction of amounts resulting from the calculation of excess expected loss (683) (1,142)Net gains on liabilities at fair value resulting from changes in own credit risk (188) (53)Defined-benefit pension fund assets (39) (40)Fair value gains arising from the institution’s own credit risk related to derivative liabilities (83) (59)Exposure amounts which could qualify for risk weighting of 1,250% (122) (141)Total regulatory adjustments to CET1 (6,732) (7,201)CET1 capital 38,512 38,162Additional Tier 1 capital (AT1) instruments 6,712 6,719AT1 regulatory adjustments (20) (20)Tier 1 capital 45,204 44,861

Tier 2 capital instruments 12,845 13,927Tier 2 regulatory adjustments (30) (30)Tier 2 capital 12,815 13,897

Total capital 58,019 58,758

Total risk-weighted assets (unaudited) 271,867 279,748

1 CET1 capital before regulatory adjustments is prepared on the regulatory scope of consolidation

87


Movement in total capital



CET1 at 1 January/1 July 38,162 37,781Ordinary shares issued in the period and share premium 4 2Profit for the period 1,557 37Foreseeable dividends net of scrip deducted from CET1 (453) (399)Difference between dividends paid and foreseeable dividends (165) 292Movement in goodwill and other intangible assets 121 (9)Foreign currency translation differences (781) 583Non-controlling interests (155) 17Movement in eligible other comprehensive income 135 1Deferred tax assets that rely on future profitability (4) 99Decrease in excess expected loss1 459 (98)Additional value adjustments (prudential valuation adjustment) 78 (17)Own credit gains (24) (60)Exposure amounts which could qualify for risk weighting 19 11Other1 (441) (78)CET1 at 30 June/31 December 38,512 38,162

AT1 at 1 January/1 July 6,699 6,688Foreign currency translation difference (7) 11

AT1 at 30 June/31 December 6,692 6,699

Tier 2 capital at 1 January/1 July 13,897 13,866Regulatory amortisation 627 1,342Issuances net of redemptions (1,713) (1,752)Foreign currency translation difference (122) 283Tier 2 ineligible minority interest 115 155Other 11 3

Tier 2 capital at 30 June/31 December 12,815 13,897

Total capital at 30 June/31 December 58,019 58,758

1 Includes day one transitional impact on the adoption of IFRS 9 accounting standards

The main movements in capital in the period were:

• The CET1 ratio increased to 14.2 per cent due to a $0.4 billion increase in CET1 and a $7.9 billion decrease inRWA

• CET1 capital increased by $0.4 billion, as profit after tax was offset in part by distributions and FX translation

• AT1 remained at $6.7 billion during the period

• Tier 2 capital reduced by $1.1 billion to $12.8 billion as redemptions and the impact of the liabilitymanagement exercise more than offset the new issuance of $0.5 billion of Tier 2 in the period.

88


Risk-weighted assets by business (unaudited)30.06.18

Credit risk$million

Operational risk$million

Market risk$million

Total risk$million

Corporate & Institutional Banking 105,190 13,029 20,516 138,735Retail Banking 35,361 7,358 – 42,719Commercial Banking 30,491 2,770 – 33,261Private Banking 5,510 758 – 6,268Central & other items 46,646 4,135 103 50,884

Total risk-weighted assets 223,198 28,050 20,619 271,867

31.12.17

Credit risk$million

Operational risk$million

Market risk$million

Total risk$million

Corporate & Institutional Banking 109,368 14,740 22,994 147,102Retail Banking 36,345 7,761 – 44,106Commercial Banking 29,712 3,356 – 33,068Private Banking 5,134 809 – 5,943Central & other items 45,671 3,812 46 49,529

Total risk-weighted assets 226,230 30,478 23,040 279,748

Risk-weighted assets by geographic region (unaudited)

30.06.18$million

31.12.17$million

Greater China & North Asia 83,422 84,593

ASEAN & South Asia 95,719 96,733Africa & Middle East 53,755 56,437Europe & Americas 41,193 44,735Central & other items (2,222) (2,750)

Total risk-weighted assets 271,867 279,748

89


Movement in risk-weighted assets (unaudited)Credit risk

Operationalrisk

$millionMarket risk

$millionTotal risk

$million


Banking$million





$millionTotal

$million

At 1 January 2017 106,834 33,210 27,553 5,129 41,149 213,875 33,693 21,877 269,445Assets (decline)/growth (78) 1,053 1,228 (123) 1,819 3,899 – – 3,899Net credit migration 1,630 (48) (205) – 157 1,534 – – 1,534Risk-weighted assets efficiencies (1,661) – – – – (1,661) – – (1,661)Model, methodology andpolicy changes – – – – – – – 80 80Disposals – – – – – – – – –Foreign currency translation 1,268 959 393 73 381 3,074 – – 3,074Other non-credit risk movements – – – – – – (3,215) 1,007 (2,208)

At 30 June 2017 107,993 35,174 28,969 5,079 43,506 220,721 30,478 22,964 274,163Assets (decline)/growth (6,285) 1,296 745 568 454 (3,222) – – (3,222)Net credit migration 2,405 122 (260) – (148) 2,119 – – 2,119Risk-weighted assets efficiencies (634) – – – – (634) – – (634)Model, methodology andpolicy changes 4,990 (368) – (575) 2,372 6,419 – (2,258) 4,161Disposals – (710) – – (443) (1,153) – – (1,153)Foreign currency translation 899 831 258 62 (70) 1,980 – – 1,980Other non-credit risk movements – – – – – – – 2,334 2,334

At 31 December 2017 109,368 36,345 29,712 5,134 45,671 226,230 30,478 23,040 279,748Assets growth 1,473 557 1,019 426 2,573 6,048 – – 6,048Net credit migration (2,317) (191) 321 – 244 (1,943) – – (1,943)Risk-weighted assetsefficiencies (325) – – – – (325) – – (325)Model, methodology and policychanges (1,769) (591) 6 – 76 (2,278) – (1,138) (3,416)Disposals – – – – (626) (626) – – (626)Foreign currency translation (1,240) (759) (567) (50) (1,292) (3,908) – – (3,908)Other non-credit riskmovements – – – – – – (2,428) (1,283) (3,711)

At 30 June 2018 105,190 35,361 30,491 5,510 46,646 223,198 28,050 20,619 271,867

Movements in risk-weighted assetsRWA decreased by $7.9 billion, or 2.8 per cent from 31 December 2017 to $271.9 billion. This was due to a decreasein credit risk RWA of $3.0 billion and $2.4 billion reduction in both market and operational risk RWA respectively.

Corporate & Institutional BankingCredit risk RWA decreased by $4.2 billion to $105.2 billion mainly due to:

• $2.3 billion decrease due to net credit migration in ASA and AME

• $1.8 billion decrease in model, methodology and policy changes, due to PRA approved IRB model changesrelating to LGD parameters

• $1.2 billion decrease from foreign currency translation due to depreciation of currencies in India, Europe andSouth Africa

• $0.3 billion decrease due to efficiencies in financial markets through novation, trade compressions andprocess enhancement in collateral recognition

• $1.5 billion RWA increase from corporate finance and financial markets.

Retail BankingCredit risk RWA decreased by $1.0 billion to $35.4 billion mainly due to:

• $0.8 billion decrease from foreign currency translation due to depreciation of currencies in Korea, India andSingapore

• $0.6 billion RWA save due to model changes in mortgages partially offset by credit cards in ASA

• $0.2 billion decrease due to net credit migration in GCNA

• $0.6 billion RWA increase from mortgages and personal loans in GCNA and ASA.

90


Commercial BankingCredit risk RWA increased by $0.8 billion to $30.5 billion mainly due to:

• $1.0 billion RWA increase from lending and transaction banking

• $0.3 billion increase due to net credit migration in GCNA

• $0.6 billion decrease from foreign currency translation due to depreciation of currencies in India, Pakistan andKorea.

Private BankingCredit risk RWA increased by $0.4 billion to $5.5 billion principally due to asset balance growth in wealth managementproducts.

Central & other itemsCredit risk RWA increased by $1.0 billion to $46.6 billion mainly due to:

• $2.6 billion increase in credit risk RWA mainly due to treasury activities, and higher RWA balances forinvestments in joint ventures

• $0.2 billion increase due to net credit migration

• $0.1 billion increase in model, methodology and policy changes, due to PRA IRB model changes relating toLGD parameters

• $1.3 billion decrease from foreign currency translation due to depreciation of currencies in Indonesia andPakistan

• $0.6 billion saving from the disposal of an investment in ASA.

Market riskTotal market risk RWA (MRWA) decreased by $2.4 billion, or 10.5 per cent from 31 December 2017 to $20.6 billion.This change was primarily due to:

• $1.1 billion reduction in standard rules MRWA for foreign exchange and interest rate risk structured products,following their full recognition in internal models approach (IMA) MRWA from March 2018

• Reduction in trading book debt security holdings $1.1 billion.

Operational riskOperational risk RWA reduced by $2.4 billion to $28.0 billion, due to a decrease in the average income over a rollingthree-year time horizon, as lower 2017 income replaced higher 2014 income. This represents a 7.9 per centyear-on-year reduction in operational risk RWA.

91


UK leverage ratio (unaudited)

The Group’s UK leverage ratio, which excludes qualifying claims on central banks in accordance with a PRA waiver,was 5.8 per cent, which is above the current minimum requirement of 3.6 per cent.

The lower UK leverage ratio in the period was a result of an increased exposure measure partly offset by a smallincrease in Tier 1 capital (end point).

UK leverage ratio (unaudited)30.06.18$million

31.12.17$million

Tier 1 capital (transitional) 45,204 44,861Additional Tier 1 capital subject to phase out (1,752) (1,758)

Tier 1 capital (end point) 43,452 43,103

Derivative financial instruments 51,780 47,031Derivative cash collateral 10,002 9,513Securities financing transactions (SFTs) 64,421 55,187Loans and advances and other assets 568,671 551,770Total on-balance sheet assets 694,874 663,501Regulatory consolidation adjustments1 (45,538) (31,712)

Derivatives adjustmentsDerivatives netting (35,847) (29,830)Adjustments to cash collateral (21,311) (18,411)Net written credit protection 1,358 1,360Potential future exposure on derivatives 32,225 30,027Total derivatives adjustments (23,575) (16,854)Counterparty risk leverage exposure measure for SFTs 14,309 13,238Off-balance sheet items 109,943 96,260Regulatory deductions from Tier 1 capital (6,461) (7,089)UK leverage exposure (end point) 743,552 717,344UK leverage ratio (end point) 5.8% 6.0%

UK leverage exposure quarterly average 736,599 723,508UK leverage ratio quarterly average 5.9% 6.0%

Countercyclical leverage ratio buffer 0.1% 0.1%G-SII additional leverage ratio buffer 0.3% 0.2%

1 Includes adjustment for qualifying central bank claims

92

Standard Chartered PLC - Financial statements and notes

Statement of directors’ responsibilities

We confirm that to the best of our knowledge:• The condensed consolidated interim financial statements have been prepared in accordance with IAS 34

Interim Financial Reporting as adopted by the EU

• The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that haveoccurred during the six months ended 30 June 2018 and their impact on the condensed consolidated interimfinancial statements; and a description of the principal risks and uncertainties for the remaining six months ofthe year

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken placeduring the six months ended 30 June 2018 that have materially affected the financial position or performance of theentity during that period; and any changes in the related party transactions described in the last annual report thatcould have materially affected the financial position or performance of the entity during that period

By order of the Board

Andy HalfordGroup Chief Financial Officer

31 July 2018

93


Independent review report

to Standard Chartered PLC

Conclusion

We have been engaged by Standard Chartered PLC including its subsidiaries (the Group) to review the condensedconsolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2018which comprises the condensed consolidated interim balance sheet, the condensed consolidated interim incomestatement, the condensed consolidated interim statement of comprehensive income, the condensed consolidatedinterim statement of changes in equity, the condensed consolidated interim cash flow statement, and the relatedexplanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidatedset of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, inall material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the DisclosureGuidance and Transparency Rules (“the DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”).

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily ofpersons responsible for financial and accounting matters, and applying analytical and other review procedures. Weread the other information contained in the half-yearly financial report and consider whether it contains any apparentmisstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing(UK) and consequently does not enable us to obtain assurance that we would become aware of all significant mattersthat might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors’ responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors areresponsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with InternationalFinancial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed setof financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the Group a conclusion on the condensed consolidated set of financial statementsin the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Group in accordance with the terms of our engagement to assist the Group inmeeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to theGroup those matters we are required to state to it in this report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other than the Group for our review work, forthis report, or for the conclusions we have reached.

Michelle Hinchliffefor and on behalf of KPMG LLPChartered Accountants15 Canada SquareLondon E14 5GL

31 July 2018

94


Condensed consolidated interim income statement


Notes




Interest income 8,227 7,650 6,785Interest expense (3,866) (3,435) (2,819)Net interest income 4,361 4,215 3,966Fees and commission income 2,114 1,961 1,981Fees and commission expense (245) (182) (248)Net fee and commission income 3 1,869 1,779 1,733Net trading income 4 966 554 973Other operating income 5 431 656 549

Operating income 7,627 7,204 7,221Staff costs (3,578) (3,495) (3,263)Premises costs (373) (437) (386)General administrative expenses (808) (1,171) (836)Depreciation and amortisation (426) (444) (385)Operating expenses 6 (5,185) (5,547) (4,870)

Operating profit before impairment losses and taxation 2,442 1,657 2,351Credit impairment 7 (214) (707) (655)Other impairment 8

Goodwill – (320) –Other (50) (86) (93)

Profit from associates and joint ventures 168 117 151

Profit before taxation 2,346 661 1,754Taxation 9 (753) (599) (548)

Profit for the period 1,593 62 1,206

Profit attributable to:Non-controlling interests 33 39 10Parent company shareholders 1,560 23 1,196

Profit for the period 1,593 62 1,206

cents cents cents

Earnings per share:Basic earnings/(loss) per ordinary share 11 40.7 (6.0) 29.5Diluted earnings/(loss) per ordinary share 11 40.2 (6.0) 29.2

The notes form an integral part of these financial statements.

95


Condensed consolidated interim statement of comprehensive income


Notes




Profit for the period 1,593 62 1,206Other comprehensive income/(loss)

Items that will not be reclassified to Income statement: 253 103 (341)

Own credit gains/(losses) on financial liabilities designated at fair value through profitor loss 136 61 (310)Equity instruments at fair value through other comprehensive income 19 – –Actuarial gains/(losses) on retirement benefit obligations 22 105 61 (29)Taxation relating to components of other comprehensive income (7) (19) (2)

Items that may be reclassified subsequently to Income statement: (826) 529 1,003Exchange differences on translation of foreign operations:

Net (losses)/gains taken to equity (1,008) 745 892Net gains/(losses) on net investment hedges 216 (177) (111)

Share of other comprehensive income/(loss) from associates and joint ventures 16 14 (15)Debt instruments at fair value through other comprehensive income/available forsale investments:

Net valuation (losses)/gains taken to equity (119) 54 315Reclassified to income statement 13 (131) (102)

Net impact of expected credit losses (8) – –Cash flow hedges:

Net gains taken to equity 49 3 32Reclassified to income statement 5 11 –

Taxation relating to components of other comprehensive income 10 10 (8)

Other comprehensive (loss)/income for the period, net of taxation (573) 632 662

Total comprehensive income for the period 1,020 694 1,868

Total comprehensive income attributable to:Non-controlling interests 25 37 13Parent company shareholders 995 657 1,855

1,020 694 1,868

96


Condensed consolidated interim balance sheet

As at 30 June 2018

Notes30.06.18$million

31.12.171

$million

AssetsCash and balances at central banks 12 58,213 58,864Financial assets held at fair value through profit or loss 12 79,869 27,564Derivative financial instruments 12,13 51,780 47,031Loans and advances to banks 12 55,603 57,494Loans and advances to customers 12 255,100 248,707Reverse repurchase agreements and other similar secured lending 12,14 12,781 54,275Investment securities 12 123,081 117,025Other assets 16 39,068 33,490Current tax assets 366 491Prepayments and accrued income 2,418 2,307Interests in associates and joint ventures 2,345 2,307Goodwill and intangible assets 15 4,974 5,013Property, plant and equipment 7,326 7,211Deferred tax assets 1,290 1,177Assets classified as held for sale 16 660 545Total assets 694,874 663,501

LiabilitiesDeposits by banks 12 30,816 30,945Customer accounts 12 382,107 370,509Repurchase agreements and other similar secured borrowing 12,14 5,863 39,783Financial liabilities held at fair value through profit or loss 12 63,274 16,633Derivative financial instruments 12,13 52,962 48,101Debt securities in issue 12 46,196 46,379Other liabilities 17 40,544 35,257Current tax liabilities 622 376Accruals and deferred income 4,752 5,493Subordinated liabilities and other borrowed funds 12,20 15,047 17,176Deferred tax liabilities 455 404Provisions for liabilities and charges 400 183Retirement benefit obligations 22 348 455

Total liabilities 643,386 611,694

EquityShare capital and share premium account 21 7,101 7,097Other reserves 11,989 12,767Retained earnings 27,106 26,641

Total parent company shareholders’ equity 46,196 46,505Other equity instruments 21 4,961 4,961

Total equity excluding non-controlling interests 51,157 51,466Non-controlling interests 331 341Total equity 51,488 51,807

Total equity and liabilities 694,874 663,501

1 Prepared and disclosed on an IAS 39 basis. Refer to Note 1 Accounting policies


97


Condensed consolidated interim statement of changes in equity


Sharecapital and

sharepremiumaccount$million

Capitaland

mergerreserves1

$million

Own creditadjustment

reserve$million

Available-for-salereserve$million

Fair valuethrough other

comprehensiveincome reserve –

debt$million


comprehensiveincome reserve –

equity$million

Cashflow

hedgereserve$million

Translationreserve$million

Retainedearnings$million

Parentcompany

shareholders’equity

$million

Other equityinstruments

$million

Non-controlling

interests$million

Total$million

As at 31December 2017 7,097 17,129 54 83 – – (45) (4,454) 26,641 46,505 4,961 341 51,807

IFRS 9Reclassifications2 – – – (83) (131) 45 – – 169 – – – –IFRS 9Re-measurements2 – – – – – 4 – – 31 35 – – 35

Expected creditloss, net – – – – 65 – – – (1,074)3 (1,009) – (8) (1,017)Tax impact – – – – (11) 5 – – 179 173 – – 173Impact of IFRS 9on share of jointventures andassociates, net oftax – – – – – (1) – – (51) (52) – – (52)

IFRS 9 transitionadjustments – – – (83) (77) 53 – – (746) (853) – (8) (861)

As at 1 January2018 7,097 17,129 54 – (77) 53 (45) (4,454) 25,895 45,652 4,961 333 50,946Profit forthe period – – – – – – – – 1,560 1,560 – 33 1,593Othercomprehensiveincome/(loss) – – 132 – (103) 37 46 (783) 1064 (565) – (8) (573)Distributions – – – – – – – – – – – (27) (27)Shares issued,net of expenses 4 – – – – – – – – 4 – – 4Net own sharesadjustment – – – – – – – – 7 7 – – 7Share optionexpense, netof taxation – – – – – – – – 97 97 – – 97Dividends netof scrip5 – – – – – – – – (564) (564) – – (564)Other movements – – – – – – – – 5 5 – – 5

As at 30 June2018 7,101 17,129 186 – (180) 90 1 (5,237) 27,106 46,196 4,961 331 51,488

1 Includes capital reserve of $5 million, capital redemption reserve of $13 million and merger reserve of $17,111 million2 As per Note 27 Transition to IFRS 9 Financial Instruments3 The Group’s initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of the Group’s expected loss models, the estimate of the

opening credit impairment provisions has been revised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earningshas similarly decreased by $222 million to $1,074 million

4 Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures $106 million ($96 million for the six months ended 31 December 2017 and $(46) million forthe six months ended 30 June 2017)

5 Comprises dividends paid net of scrip $347 million (2017: $nil) and dividends on preference shares classified as equity and Additional Tier 1 securities $217 million ($220 million for thesix months ended 31 December 2017 and $225 million for the six months ended 30 June 2017)

98


Sharecapital

andshare

premiumaccount$million

Capitaland

mergerreserves1

$million


reserve$million



comprehensiveincome reserve

– debt$million


comprehensiveincome reserve

– equity$million

Cashflow

hedgereserve$million



Parentcompany


$million


$million

Non-controlling

interests$million

Total$million

At 1 January 2017 7,091 17,129 289 (4) – – (85) (5,805) 25,753 44,368 3,969 321 48,658Profit forthe period – – – – – – – – 1,196 1,196 – 10 1,206Othercomprehensive(loss)/income – – (296) 192 – – 28 781 (46)2 659 – 3 662Distributions – – – – – – – – – – – (52) (52)Shares issued,net of expenses 4 – – – – – – – – 4 – – 4Other equityinstrumentsissued, netof expenses – – – – – – – – – – 992 – 992Net own sharesadjustment – – – – – – – – 8 8 – – 8Share optionexpense, netof taxation – – – – – – – – 68 68 – – 68Dividends3 – – – – – – – – (225) (225) – – (225)Other movements4 – – – – – – – – 17 17 – 24 41

At 30 June 2017 7,095 17,129 (7) 188 – – (57) (5,024) 26,771 46,095 4,961 306 51,362Profit forthe period – – – – – – – – 23 23 – 39 62Othercomprehensiveincome/(loss) – – 61 (105) – – 12 570 962 634 – (2) 632Distributions – – – – – – – – – – – 1 1Shares issued,net of expenses 2 – – – – – – – – 2 – – 2Net own sharesadjustment – – – – – – – – 2 2 – – 2Share optionexpense, netof taxation – – – – – – – – 57 57 – – 57Dividends3 – – – – – – – – (220) (220) – – (220)Other movements5 – – – – – – – – (88) (88) – (3) (91)

As at 31December 2017 7,097 17,129 54 83 – – (45) (4,454) 26,641 46,505 4,961 341 51,807

1 Includes capital reserve of $5 million, capital redemption reserve of $13 million and merger reserve of $17,111 million2 Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures of $96 million for the six months ended 31 December 2017 and $(46) million for the six

months ended 30 June 20173 Comprises dividends on preference shares classified as equity and Additional Tier 1 securities $220 million for the six months ended 31 December 2017 and $225 million for the six

months ended 30 June 20174 Mainly due to additional share capital issued including the premium by Nepal to its non-controlling interests of $32 million and $9 million with respect to an acquisition5 Mainly due to other equity adjustments of $90 million

Note 21 includes a description of each reserve.


99


Condensed consolidated interim cash flow statement





Cash flows from operating activities:Profit before taxation 2,346 661 1,754Adjustments for non-cash items and other adjustments included within income statement 1,183 2,207 1,034

Change in operating assets (28,843) (6,674) (6,951)Change in operating liabilities 39,994 3,404 2,415Contributions to defined benefit schemes (38) (93) (50)UK and overseas taxes paid (330) (456) (459)

Net cash from/(used in) operating activities 14,312 (951) (2,257)

Cash flows from investing activities:Purchase of property, plant and equipment (64) (108) (57)Disposal of property, plant and equipment 3 2 27Acquisition of investment in subsidiaries, associates and joint ventures, net of cash acquired – – (44)Dividends received from subsidiaries, associates and joint ventures 3 1 1Disposal of subsidiaries – (24) 24Purchase of investment securities (143,903) (131,854) (133,332)Disposal and maturity of investment securities 134,847 126,269 135,047

Net cash (used in)/from investing activities (9,114) (5,714) 1,666

Cash flows from financing activities:Issue of ordinary and preference share capital, net of expenses 4 2 4Exercise of share options 7 2 8Issue of Additional Tier 1 capital, net of expenses – – 992Gross proceeds from issue of subordinated liabilities 500 – –Interest paid on subordinated liabilities (242) (486) (257)Repayment of subordinated liabilities (2,242) (2,984) –Proceeds from issue of senior debts 1,921 2,031 261Repayment of senior debts (2,464) (2,977) (1,185)Interest paid on senior debts (222) (548) (348)(Repayment to)/investment from non-controlling interests – (3) 24Dividends paid to non-controlling interests and preference shareholders (243) (219) (277)Dividends paid to ordinary shareholders (348) – –

Net cash used in financing activities (3,329) (5,182) (778)Net increase/(decrease) in cash and cash equivalents 1,869 (11,847) (1,369)

Cash and cash equivalents at beginning of the period 87,231 98,596 96,977Effect of exchange rate movements on cash and cash equivalents (785) 482 2,988

Cash and cash equivalents at end of the period 88,315 87,231 98,596

100


Contents – notes to the financial statements

Section Note Page

Basis of preparation 1 Accounting policiesPerformance and return 2 Segmental information

3 Net fees and commission4 Net trading income5 Other operating income6 Operating expenses7 Credit impairment8 Other impairment9 Taxation10 Dividends11 Earnings per ordinary share

Assets and liabilities held at fair value 12 Financial instruments13 Derivative financial instruments

Financial instruments held at amortised cost 14 Reverse repurchase and repurchase agreements including other similar secured lendingand borrowing

Other assets and investments 15 Goodwill and intangible assets16 Other assets

Funding, accruals, provisions, contingent liabilitiesand legal proceedings

17 Other liabilities18 Contingent liabilities and commitments19 Legal and regulatory matters

Capital instruments, equity and reserves 20 Subordinated liabilities and other borrowed funds21 Share capital, other equity and reserves

Employee benefits 22 Retirement benefit obligations

Other disclosure matters 23 Related party transactions24 Post balance sheet events25 Corporate governance26 Statutory accounts27 Transition to IFRS 9 Financial Instruments28 Dealings in Standard Chartered PLC listed securities

101

Standard Chartered PLC - Financial statements and notesNotes to the financial statements

1. Accounting policies

Statement of complianceThe Group’s condensed consolidated interim financial statements consolidate those of Standard Chartered PLC (theCompany) and its subsidiaries (together referred to as the Group) and equity account the Group’s interest inassociates and jointly controlled entities. These interim financial statements have been prepared in accordance withthe Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and with IAS 34 InterimFinancial Reporting as issued by the International Accounting Standards Board (IASB) and adopted by the EuropeanUnion (EU). They should be read in conjunction with the annual consolidated financial statements of the Group for theyear ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards(IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as issued by the IASB and endorsed by the EU. At30 June 2018, there was no difference between IFRS endorsed by the EU and the IFRS issued by the IASB in termsof their application to the Group.

The following form part of these interim financial statements:

a) Risk review: from the start of Credit risk review to the end of the Other principal risks, excluding:

• Credit quality by geographic region

• Credit quality by industry

• Credit impaired (stage 3) loans by geographic region

• Industry and Retail products analysis by geographic region

• Country risk

• Market risk changes – risks not in VaR

• Market risk changes – backtesting

• Liquidity coverage ratio (LCR)

• Stressed coverage

• Net stable funding ratio (NSFR)

• Liquidity pool

• Encumbrance

• Interest Rate Risk in the Banking Book

• Operational risk

• Other principal risks

b) Capital review: from the start of Capital Requirements Directive (CRD) IV capital base to the end of Movement intotal capital, excluding capital ratios and risk-weighted assets (RWA)

Accounting policiesThe accounting policies applied by the Group in the Interim Financial Information are the same as those applied by theGroup in the 2017 annual consolidated financial statements, except that the classification, measurement andimpairment of financial instruments are accounted for under IFRS 9 Financial Instruments, and the recognition ofrevenue from contracts with customers is accounted for under IFRS 15. Both standards are effective from 1 January2018. The Interim Financial Information has been prepared in accordance with the “Recognition and measurement”requirements of IAS 34.

Significant accounting estimates and judgementsThe preparation of interim financial statements requires management to make judgements, estimates andassumptions that affect the application of accounting policies and the reported amounts of assets and liabilities,income and expense. Actual results may differ from these estimates. The significant judgements made bymanagement in applying the Group’s accounting policies and key sources of uncertainty were the same as thoseapplied to the consolidated financial statements as at, and for, the year ended 31 December 2017, except for thetreatment of financial instruments under IFRS 9 as explained above. Summaries of the Group’s significant accountingpolicies are included throughout the 2017 Annual Report.

102


IFRS and Hong Kong accounting requirementsAs required by the Hong Kong Listing Rules, an explanation of the differences in accounting practices betweenEU-endorsed IFRS and Hong Kong Financial Reporting Standards is required to be disclosed. There would be nosignificant differences had these accounts been prepared in accordance with Hong Kong Financial ReportingStandards.

ComparativesPrior period comparatives are presented on an IAS 39 basis. Certain comparatives have been changed to align withcurrent year disclosures. The main changes are in respect of IFRS 9 (see below) and the Risk review – Daily value atrisk.

New accounting standards adopted by the GroupIFRS 9 Financial InstrumentsOn 1 January 2018, the Group adopted IFRS 9 Financial Instruments. IFRS 9 has been endorsed by the EU, andreplaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new requirements for: theclassification and measurement of financial instruments; the recognition and measurement of credit impairmentprovisions; and provides for a simplified approach to hedge accounting.

The Group has further chosen:

• To continue to apply IAS 39 hedging requirements rather than those of IFRS 9

• Not to restate comparative periods on the basis that it is not possible to do so without the use of hindsight

The new IFRS 9 accounting policies are stated in the Risk review, Note 7 Credit impairment and Note 12 Financialinstruments.

Information of the transition from IAS 39 to IFRS 9 is stated in Note 27.

The Group’s initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Followingrefinement of the Group’s expected loss models, the estimate of the opening credit impairment provisions has beenrevised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted againstretained earnings has similarly decreased by $222 million to $(1,074) million. The relevant IFRS 9 disclosures in theRisk Review and in Note 27 Transition to IFRS 9 Financial Instruments have been re-presented accordingly.

IFRS 15 Revenue from Contracts with CustomersIFRS 15 is effective from 1 January 2018 and has been endorsed by the EU, and replaces IAS 18 Revenue. IFRS 15 isconceptually similar to IAS 18, but includes more granular guidance on how to recognise and measure revenue, andalso introduces additional disclosure requirements. The Group performed an assessment of the new standard andconcluded that the current treatment of revenue from contracts with customers is consistent with the new principlesand there is no transitional impact to retained earnings.

Going concernThese interim financial statements were approved by the Board of directors on 31 July 2018. The directors made anassessment of the Group’s ability to continue as a going concern and confirm they are satisfied that the Group hasadequate resources to continue in business for a period of at least 12 months from the date of approval of theseinterim financial statements. For this reason, the Group continues to adopt the going concern basis of accounting forpreparing the financial statements.

New accounting standards in issue but not yet effectiveIFRS 16 LeasesThe effective date of IFRS 16 is 1 January 2019 and the standard was endorsed by the EU in November 2017. IFRS16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leaseswith a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise aright-of-use asset representing its right to use the underlying leased asset and a lease liability representing itsobligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17Leases. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account forthose two types of leases differently. The work to assess the impact of the standard is ongoing and it is not yetpracticable to quantify the effect of IFRS 16 on these consolidated financial statements. The Group will have a balancesheet increase in lease liabilities and right-of-use assets on adoption of IFRS 16.

103


2. Segmental information

The Group’s segmental reporting is in accordance with IFRS 8 Operating Segments and is reported consistently withthe internal performance framework and as presented to the Group’s Management Team. The four client segmentsare Corporate & Institutional Banking, Retail Banking, Commercial Banking and Private Banking. The four geographicregions are Greater China & North Asia, ASEAN & South Asia, Africa & Middle East, and Europe & Americas. Activitiesnot directly related to a client segment and/or geographic region are included in Central & other items. These mainlyinclude Corporate Centre costs, Asset and Liability Management, treasury activities, certain strategic investments andthe UK bank levy.

The following should also be noted:

• Transactions and funding between the segments are carried out on an arm’s-length basis

• Corporate Centre costs represent stewardship and central management services roles and activities that arenot directly attributable to business or country operations

• Asset and Liability Management, joint ventures and associate investments are managed in the regions andare included withinthe applicable region. However, they are not managed directly by a client segment and are therefore includedin the Central & other items segment

• In addition to treasury activities, Corporate Centre costs and other Group related functions, Central & otheritems for regions includes globally run businesses or activities that are managed by the client segments butnot directly by geographic management. These include Principal Finance and Portfolio Management

• The Group allocated central costs (excluding Corporate Centre costs) relating to client segments andgeographic regions using appropriate business drivers (such as in proportion to the direct cost base of eachsegment before allocation of indirect costs) and these are reported within operating expenses

Basis of preparationThe analysis reflects how the client segments and geographic regions are managed internally. This is described as theManagement View and is principally the location from which a client relationship is managed, which may differ fromwhere it is financially booked and may be shared between businesses and/or regions. In certain instances thisapproach is not appropriate and a Financial View is disclosed, that is, the location in which the transaction or balancewas booked. Typically, the Financial View is used in areas such as the Market and Liquidity Risk reviews where actualbooking location is more important for an assessment. Segmental information is therefore on a Management Viewunless otherwise stated.

Restructuring items excluded from underlying resultsIncome, costs and impairment relating to identifiable business units, products or portfolios from the date that theyhave been approved for restructuring, disposal, wind down or redundancy as a consequence of the Strategy Reviewannounced on 3 November 2015 are presented as restructuring and excluded from the underlying results of theGroup. This includes realised and unrealised gains and losses from management’s decisions to dispose of assets aswell as residual income, direct costs and impairment of related legacy assets of those identifiable business units,products or portfolios.

104


A reconciliation between underlying and statutory results is set out in the table below:


Underlying$million


Net gain onbusinessesdisposed/

held for sale$million

Goodwillimpairment

$million

Gains arising onrepurchase of

senior andsubordinated

liabilities$million

Statutory$million

Operating income 7,649 (91) – – 69 7,627Operating expenses (5,117) (68) – – – (5,185)

Operating profit/(loss) before impairmentlosses and taxation 2,532 (159) – – 69 2,442Credit impairment (293) 79 – – – (214)Other impairment (51) 1 – – – (50)Profit from associates and joint ventures 168 – – – – 168

Profit/(loss) before taxation 2,356 (79) – – 69 2,346


Underlying$million




Goodwillimpairment

$million



liabilities$million

Statutory$million

Operating income 7,067 59 78 – – 7,204Operating expenses (5,351) (196) – – – (5,547)

Operating profit/(loss) before impairmentlosses and taxation 1,716 (137) 78 – – 1,657Credit impairment (617) (90) – – – (707)Other impairment (85) (1) – (320) – (406)Profit from associates and joint ventures 77 40 – – – 117

Profit/(loss) before taxation 1,091 (188) 78 (320) – 661


Underlying$million




Goodwillimpairment

$million



liabilities$million

Statutory$million

Operating income 7,222 (1) – – – 7,221Operating expenses (4,769) (101) – – – (4,870)

Operating profit/(loss) before impairmentlosses and taxation 2,453 (102) – – – 2,351Credit impairment (583) (72) – – – (655)Other impairment (84) (9) – – – (93)Profit from associates and joint ventures 133 18 – – – 151Profit/(loss) before taxation 1,919 (165) – – – 1,754

105


Underlying performance by client segment6 months ended 30.06.18


Banking$million





$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 1,233 736 246 (4) 321 2,532Credit impairment (81) (119) (106) (1) 14 (293)Other impairment (59) – – – 8 (51)Profit from associates and joint ventures – – – – 168 168

Underlying profit/(loss) before taxation 1,093 617 140 (5) 511 2,356Restructuring (76) (4) (1) (6) 8 (79)Gains arising on repurchaseof senior and subordinated liabilities 3 – – – 66 69

Statutory profit/(loss) before taxation 1,020 613 139 (11) 585 2,346





Banking$million





$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 992 576 219 1 (72) 1,716Credit impairment (289) (203) (125) (1) 1 (617)Other impairment (90) (1) – – 6 (85)Profit from associates and joint ventures – – – – 77 77Underlying profit before taxation 613 372 94 – 12 1,091Restructuring (99) (23) (7) (14) (45) (188)Net gains on businessesdisposed/held for sale – – – – 78 78Goodwill impairment – – – – (320) (320)Statutory profit/(loss) before taxation 514 349 87 (14) (275) 661





Banking$million





$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 1,095 673 233 (1) 453 2,453Credit impairment (369) (172) (42) – – (583)Other impairment (78) – (3) – (3) (84)Profit from associates and joint ventures – – – – 133 133Underlying profit/(loss) before taxation 648 501 188 (1) 583 1,919Restructuring (176) 4 (6) (1) 14 (165)

Statutory profit/(loss) before taxation 472 505 182 (2) 597 1,754



106


Underlying performance by region6 months ended 30.06.18


$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million


Operating profit beforeimpairment losses and taxation 1,194 713 457 134 34 2,532Credit impairment (17) (138) (70) (68) – (293)Other impairment (44) 7 – 17 (31) (51)Profit from associates and joint ventures 156 7 – 3 2 168

Underlying profit before taxation 1,289 589 387 86 5 2,356

Restructuring (26) 88 (41) (5) (95) (79)Gains arising on repurchaseof senior and subordinated liabilities – – – 3 66 69


Net interest margin 1.5% 2.0% 3.1% 0.4% 1.6%Total assets 268,294 147,017 58,343 208,599 12,621 694,874


Of which: customer accounts 190,305 95,228 31,540 117,941 – 435,014



$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million


Operating profit/(loss) beforeimpairment losses and taxation 903 465 445 65 (162) 1,716Credit impairment (65) (338) (171) (44) 1 (617)Other impairment (27) (9) (1) (16) (32) (85)Profit/(loss) from associates and joint ventures 106 (26) – – (3) 77Underlying profit/(loss) before taxation 917 92 273 5 (196) 1,091Restructuring 45 (114) (26) (10) (83) (188)Net gains on businessesdisposed/held for sale – 19 – – 59 78Goodwill impairment – – – – (320) (320)Statutory profit/(loss) before taxation 962 (3) 247 (5) (540) 661Net interest margins 1.4% 1.9% 3.3% 0.5% 1.6%Total assets 257,692 148,467 59,166 185,345 12,831 663,501



107




$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million


Operating profit beforeimpairment losses and taxation 1,032 714 500 129 78 2,453Credit impairment (76) (315) (129) (63) – (583)Other impairment (54) (3) (2) – (25) (84)Profit from associates and joint ventures 123 4 – – 6 133

Underlying profit before taxation 1,025 400 369 66 59 1,919Restructuring (10) (47) (7) (15) (86) (165)Statutory profit/(loss) before taxation 1,015 353 362 51 (27) 1,754Net interest margins 1.3% 1.9% 3.4% 0.5% 1.6%Total assets 249,672 149,173 56,296 191,220 11,277 657,638



Additional segmental information (statutory)6 months ended 30.06.18


Banking$million



Private

Banking$million


$millionTotal

$million

Net interest income 1,691 1,577 427 147 519 4,361Net fees and commission income 763 884 151 110 (39) 1,869Other income 904 158 128 16 191 1,397

Operating income 3,358 2,619 706 273 671 7,627



Banking$million





$millionTotal

$million





Banking$million





$millionTotal

$million





$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million

Net interest income 1,677 1,275 767 311 331 4,361Other income 1,418 811 610 562 (135) 3,266

Operating income 3,095 2,086 1,377 873 196 7,627

108




$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million

Net interest income 1,555 1,246 811 376 227 4,215Other income 1,268 640 567 414 100 2,989Operating income 2,823 1,886 1,378 790 327 7,204



$million

ASEAN &South Asia

$million

Africa &Middle East

$million

Europe &Americas

$million


$millionTotal

$million

Net interest income 1,395 1,156 808 316 291 3,966Other income 1,395 828 578 490 (36) 3,255

Operating income 2,790 1,984 1,386 806 255 7,221


Hong Kong$million

Korea$million

China$million

Singapore$million

India$million

UAE$million

UK$million

US$million

Net interest income 903 341 337 531 310 182 137 120Other income 945 193 83 319 165 175 307 213

Operating income 1,848 534 420 850 475 357 444 333


Hong Kong$million

Korea$million

China$million

Singapore$million

India$million

UAE$million

UK$million

US$million




Hong Kong$million

Korea$million

China$million

Singapore$million

India$million

UAE$million

UK$million

US$million



109


3. Net fees and commission6 months ended

30.06.18$million



Fees and commissions income 2,114 1,961 1,981Fees and commissions expense (245) (182) (248)Net fees and commission 1,869 1,779 1,733

Total fee income arising from financial instruments that are not fair valued through profit or loss is $699 million (31December 2017: $538 million and 30 June 2017: $529 million) and arising from trust and other fiduciary activities of$78 million (31 December 2017: $63 million and 30 June 2017: $67 million).

Total fee expense arising from financial instruments that are not fair valued through profit or loss is $55 million (31December 2017: $41 million and 30 June 2017: $33 million) and arising from trust and other fiduciary activities of $14million (31 December 2017: $11 million and 30 June 2017: $11 million).



Banking$million





$millionTotal

$million

Transaction Banking 555 6 118 – – 679

Trade 236 6 86 – – 328Cash Management and Custody 319 – 32 – – 351

Financial Markets 101 – 13 – – 114Corporate Finance 78 – 11 – – 89Lending and Portfolio Management 23 – 8 – – 31Principal Finance 6 – – – – 6Wealth Management – 652 1 109 – 762Retail Products – 229 – 1 – 230Treasury – – – – (12) (12)Others1 – (3) – – (27) (30)

Net fees and commission 763 884 151 110 (39) 1,869

1 Others include GSAM

110

Standard Chartered PLC - Financial statements and notes6 months ended 31.12.17


Banking$million





$millionTotal

$million



Financial Markets 185 – 24 – – 209Corporate Finance (43) – (4) – – (47)Lending and Portfolio Management 70 – 7 – – 77Principal Finance 9 – – – – 9Wealth Management – 606 2 89 – 697Retail Products – 222 – 1 – 223Treasury – – – – (12) (12)Others – 2 – – (29) (27)

Net fees and commission 755 836 139 90 (41) 1,779



Banking$million





$millionTotal

$million



Financial Markets (18) – 2 – – (16)Corporate Finance 250 – 23 – – 273Lending and Portfolio Management (34) – 8 – – (26)Principal Finance 8 – – – – 8Wealth Management – 565 2 91 – 658Retail Products – 219 – 1 – 220Treasury – – – – (8) (8)Others – – – – (3) (3)Net fees and commission 716 790 146 92 (11) 1,733

4. Net trading income




Net trading income 966 554 973

Significant items within net trading income include:Gains on instruments held for trading 944 636 1,080Losses on financial assets mandatorily at fair value through profit or loss (77) – –(Losses)/gains on financial assets designated at fair value through profit or loss (13) 126 41Gains/(losses) on financial liabilities designated at fair value through profit or loss 165 (33) (169)

5. Other operating income




Other operating income includes:Rental income from operating lease assets 288 384 286Gains less losses on disposal of available-for-sale financial instruments (13) 134 101Net gain on sale of businesses – 14 14Net gain on derecognition of investment in associate – 64 –Dividend income 9 8 38Gains arising on repurchase of senior and subordinated liabilities1 69 – –Other 78 52 110

431 656 549

1 On the 14 June 2018, Standard Chartered PLC repurchased in part, £245.7 million of its £750 million 4.375 per cent senior debt 2038 and £372.5 million of its £900 million 5.125 percent subordinated debt 2034. On the same date, Standard Chartered Bank repurchased in part, £95.1 million of its £200 million 7.75 per cent subordinated notes(callable 2022). This activity resulted in an overall gain of £69 million for the Group. Please refer to note 20

111


6. Operating expenses



$million


$million

Staff costs:Wages and salaries 2,745 2,570 2,477Social security costs 96 76 83Other pension costs (note 22) 187 201 156Share-based payment costs 104 72 80Other staff costs 446 576 467

3,578 3,495 3,263

Premises and equipment expenses:Rental of premises 186 190 189Other premises and equipment costs 177 239 188Rental of computers and equipment 10 8 9

373 437 386

General administrative expenses:UK bank levy – 220 –Other general administrative expenses 808 951 836

808 1,171 836



$million


$million

Depreciation and amortisation:Property, plant and equipment:

Premises 44 44 41Equipment 47 45 40Operating lease assets 148 170 158

239 259 239Intangibles:

Software 182 180 140Acquired on business combinations 5 5 6

426 444 385

The UK bank levy is applied on the chargeable equities and liabilities on the Group’s consolidated balance sheetexcluding Tier 1 capital, insured or guaranteed retail deposits, repo secured on certain sovereign debt and liabilitiessubject to netting. The rate of the levy for 2018 is the blended rate of 0.16 per cent (31 December 2017: 0.17 per cent)for chargeable short-term liabilities, with a lower rate of 0.08 per cent (31 December 2017: 0.085 per cent) applied tochargeable equity and long-term liabilities.

112


7. Credit impairment

Accounting policySignificant accounting estimates and judgementsThe Group’s expected credit loss (ECL) calculations are outputs of complex models with a number of underlyingassumptions. The significant judgements and estimates in determining expected credit loss include:

• The Group’s criteria for assessing if there has been a significant increase in credit risk; and

• Development of expected credit loss models, including the choice of inputs relating to macroeconomicvariables.

The calculation of credit-impairment provisions also involves expert credit judgement to be applied by the credit riskmanagement team based upon counterparty information they receive from various sources including relationshipmanagers and on external market information.

Expected credit lossesExpected credit losses are determined for all financial debt instruments that are classified at amortised cost or fairvalue through other comprehensive income, undrawn commitments and financial guarantees.

An expected credit loss represents the present value of expected cash shortfalls over the residual term of a financialasset, undrawn commitment or financial guarantee.

A cash shortfall is the difference between the cash flows that are due in accordance with the contractual terms of theinstrument and the cash flows that the Group expects to receive over the contractual life of the instrument.

MeasurementExpected credit losses are computed as unbiased, probability weighted amounts which are determined by evaluatinga range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportableinformation including that which is forward looking.

For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default(PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). There may be multipledefault events over the lifetime of an instrument. Further details on the components of PD, LGD and EAD aredisclosed in the Credit risk section. For less material Retail Banking loan portfolios, the Group has adopted simplifiedapproaches based on historical roll rates or loss rates.

Forward-looking economic assumptions are incorporated into the PD, LGD and EAD where relevant and where theyinfluence credit risk, such as GDP growth rates, interest rates, house price indices and commodity prices amongothers. These assumptions are incorporated using the Group’s most likely forecast for a range of macroeconomicassumptions. These forecasts are determined using all reasonable and supportable information, which includes bothinternally developed forecasts and those available externally, and are consistent with those used for budgeting,forecasting and capital planning.

To account for the potential non-linearity in credit losses, multiple forward-looking scenarios are incorporated into therange of reasonably possible outcomes for all material portfolios. For example, where there is a greater risk ofdownside credit losses than upside gains, multiple forward-looking economic scenarios are incorporated into therange of reasonably possible outcomes, both in respect of determining the PD (and where relevant, the LGD and EAD)and in determining the overall expected credit loss amounts. These scenarios are determined using a Monte Carloapproach centred around the Group’s most likely forecast of macroeconomic assumptions.

The period over which cash shortfalls are determined is generally limited to the maximum contractual period for whichthe Group is exposed to credit risk. However, for certain revolving credit facilities, which include credit cards oroverdrafts, the Group’s exposure to credit risk is not limited to the contractual period. For these instruments, theGroup estimates an appropriate life based on the period that the Group is exposed to credit risk, which includes theeffect of credit risk management actions such as the withdrawal of undrawn facilities.

For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert creditjudgement. As a practical expedient, the Group may also measure credit impairment on the basis of an instrument’sfair value using an observable market price.

The estimate of expected cash shortfalls on a collateralised financial instrument reflects the amount and timing of cashflows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral,regardless of whether foreclosure is deemed probable.

113


Cash flows from unfunded credit enhancements held are included within the measurement of expected credit losses ifthey are part of, or integral to, the contractual terms of the instrument (this includes financial guarantees, unfunded riskparticipations and other non-derivative credit insurance). Although non-integral credit enhancements do not impactthe measurement of expected credit losses, a reimbursement asset is recognised to the extent of the expected creditlosses recorded.

Cash shortfalls are discounted using the effective interest rate (or credit-adjusted effective interest rate for POCIinstruments) on the financial instrument as calculated at initial recognition or if the instrument has a variable interestrate, the current effective interest rate determined under the contract.

Instruments Location of expected credit loss provisions

Financial assets held at amortised cost Loss provisions: netted against gross carrying value1

Financial assets held at FVOCI – Debt instruments Other comprehensive income (FVOCI expected credit loss Reserve)2

Loan commitments Provisions for liabilities and charges3

Financial guarantees Provisions for liabilities and charges3

1 Purchased or originated credit impaired assets do not attract an expected credit loss provision on initial recognition. An expected credit loss provision will be recognised only if there isan increase in expected credit losses from that considered at initial recognition

2 Debt and treasury securities classified as FVOCI are held at fair value on the face of the balance sheet. The expected credit loss attributed to these instruments is held as a separatereserve within OCI and is recycled to the profit and loss account along with any fair value measurement gains or losses held within FVOCI when the applicable instruments arederecognised

3 Expected credit loss on loan commitments and financial guarantees is recognised as a liability provision. Where a financial instrument includes both a loan (i.e. financial assetcomponent) and an undrawn commitment (i.e. loan commitment component), and it is not possible to separately identify the expected credit loss on these components, expectedcredit loss amounts on the loan commitment are recognised together with expected credit loss amounts on the financial asset. To the extent the combined expected credit lossexceeds the gross carrying amount of the financial asset, the expected credit lossis recognised as a liability provision

Recognition

12 months expected credit losses (Stage 1)Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent thelifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheetdate. Expected credit losses continue to be determined on this basis until there is either a significant increase in thecredit risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered toexhibit a significant increase in credit risk, expected credit losses will revert to being determined on a 12-month basis.

Significant increase in credit risk (Stage 2)If a financial asset experiences a significant increase in credit risk (SICR) since initial recognition, an expected creditloss provision is recognised for default events that may occur over the lifetime of the asset.

Significant increase in credit risk is assessed by comparing the risk of default of an exposure at the reporting date tothe risk of default at origination (after taking into account the passage of time). Significant does not mean statisticallysignificant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of defaultis significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends onthe type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired willalways be considered to have experienced a significant increase in credit risk. For less material portfolios wherea loss rate or roll rate approach is applied to compute expected credit loss, significant increase in credit risk isprimarily based on 30 days past due.

Quantitative factors include an assessment of whether there has been significant increase in the forward-lookingprobability of default (PD) since origination. A forward-looking PD is one that is adjusted for future economicconditions to the extent these are correlated to changes in credit risk. We compare the residual lifetime PD at thebalance sheet date to the residual lifetime PD that was expected at the time of origination for the same point in theterm structure and determine whether both the absolute and relative change between the two exceeds predeterminedthresholds. To the extent that the differences between the measures of default outlined exceed the definedthresholds, the instrument is considered to have experienced a significant increase in credit risk.

Qualitative factors assessed include those linked to current credit risk management processes, such as lendingplaced on non-purely precautionary early alert (and subject to closer monitoring).

A non-purely precautionary early alert account is one which exhibits risk or potential weaknesses of a material naturerequiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower’s account, ifleft uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded.Indicators could include a rapid erosion of position within the industry, concerns over management’s ability to manageoperations, weak/deteriorating operating results, liquidity strain and overdue balances among other factors.

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Credit impaired (or defaulted) exposures (Stage 3)Financial assets that are credit impaired (or in default) represent those that are at least 90 days past due in respect ofprincipal and/or interest. Financial assets are also considered to be credit impaired where the obligors are unlikely topay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cashflows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect ofseveral events may cause financial assets to become credit impaired.

Evidence that a financial asset is credit impaired includes observable data about the following events:

• Significant financial difficulty of the issuer or borrower;

• Breach of contract such as default or a past due event;

• For economic or contractual reasons relating to the borrower’s financial difficulty, the lenders of the borrowerhave granted the borrower concession/s that lenders would not otherwise consider. This would includeforbearance actions;

• Pending or actual bankruptcy or other financial reorganisation to avoid or delay discharge of the borrower’sobligation/s;

• The disappearance of an active market for the applicable financial asset due to financial difficulties of theborrower; and

• Purchase or origination of a financial asset at a deep discount that reflects incurred credit losses.

Irrevocable lending commitments to a credit impaired obligor that have not yet been drawn down are also includedwithin the stage 3 credit impairment provision to the extent that the commitment cannot be withdrawn.

Loss provisions against credit impaired financial assets are determined based on an assessment of the recoverablecash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The lossprovisions held represent the difference between the present value of the cash flows expected to be recovered,discounted at the instrument’s original effective interest rate, and the gross carrying value of the instrument prior toany credit impairment. The Group’s definition of default is aligned with the regulatory definition of default as set out inEuropean Capital Requirements Regulation (CRR178) and related guidelines.

Expert credit judgementFor Corporate & Institutional, Commercial and Private Banking, borrowers are graded by credit risk management on acredit grading (CG) scale from CG1 to CG14. Once a borrower starts to exhibit credit deterioration, it will move alongthe credit grading scale in the performing book and when it is classified as CG12 the credit assessment and oversightof the loan will normally be performed by Group Special Assets Management (GSAM).

Borrowers graded CG12 exhibit well-defined weaknesses in areas such as management and/or performance butthere is no current expectation of a loss of principal or interest. Where the impairment assessment indicates that therewill be a loss of principal on a loan, the borrower is graded a CG14 while borrowers of other credit impaired loans aregraded CG13. Instruments graded CG13 or CG14 are regarded as non-performing loans, i.e. Stage 3 or creditimpaired exposures.

For individually significant financial assets within Stage 3, Group Special Asset Management (GSAM) will consider alljudgements that have an impact on the expected future cash flows of the asset. These include: the businessprospects, industry and geo-political climate of the customer, quality of realisable value of collateral, the Group’s legalposition relative to other claimants and any renegotiation/ forbearance/ modification options. The difference betweenthe loan carrying amount and the discounted expected future cash flows will result in the stage 3 credit impairmentamount. The future cash flow calculation involves significant judgements and estimates. As new information becomesavailable and further negotiations/forbearance measures are taken the estimates of the future cash flows will berevised, and will have an impact on the future cash flow analysis.

For financial assets which are not individually significant, such as the Retail Banking portfolio or small business loans,which comprise a large number of homogenous loans that share similar characteristics, statistical estimates andtechniques are used, as well as credit scoring analysis.

Retail Banking clients are considered credit impaired where they are more 90 days past due. Retail Banking productsare also considered credit impaired if the borrower files for bankruptcy or other forbearance programme, the borroweris deceased or the business is closed in the case of a small business, or if the borrower surrenders the collateral, orthere is an identified fraud on the account. Additionally, if the account is unsecured and the borrower has other creditaccounts with the Group that are considered credit impaired, the account may be also be credit impaired.

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Techniques used to compute impairment amounts use models which analyse historical repayment and default ratesover a time horizon. Where various models are used, judgement is required to analyse the available informationprovided and select the appropriate model or combination of models to use.

Expert credit judgement is also applied to determine whether any post-model adjustments are required for credit riskelements which are not captured by the models.

Modified financial instrumentsWhere the original contractual terms of a financial asset have been modified for credit reasons and the instrument hasnot been derecognised, the resulting modification loss is recognised within credit impairment in the income statementwithin a corresponding decrease in the gross carrying value of the asset. If the modification involved a concession thatthe bank would not otherwise consider, the instrument is considered to be credit impaired and is considered forborne.

Expected credit loss for modified financial assets that have not been derecognised and are not considered to becredit-impaired will be recognised on a 12-month basis, or a lifetime basis, if there is a significant increase in creditrisk. These assets are assessed to determine whether there has been a significant increase in credit risk subsequentto the modification. Although loans may be modified for non-credit reasons, a significant increase in credit risk mayoccur.

In addition to the recognition of modification gains and losses, the revised carrying value of modified financial assetswill impact the calculation of expected credit losses, with any increase or decrease in expected credit loss recognisedwithin impairment.

Forborne loansForborne loans are those loans that have been modified in response to a customer’s financial difficulties.

Forbearance strategies assist clients who are temporarily in financial distress and are unable to meet their originalcontractual repayment terms. Forbearance can be initiated by the client, the Group or a third party includinggovernment sponsored programmes or a conglomerate of credit institutions. Forbearance may include debtrestructuring such as new repayment schedules, payment deferrals, tenor extensions, interest only payments, lowerinterest rates, forgiveness of principal, interest or fees, or relaxation of loan covenants.

Forborne loans that have been modified (and not derecognised) on terms that are not consistent with those readilyavailable in the market and/or where we have granted a concession compared to the original terms of the loans areconsidered credit impaired if there is a detrimental impact on cash flows. The modification loss (see Classification andmeasurement – Modifications) is recognised in the profit or loss within credit impairment and the gross carrying valueof the loan reduced by the same amount. The modified loan is disclosed as ‘Loans subject to forbearance – creditimpaired’.

Loans that have been subject to a forbearance modification, but which are not considered credit impaired (notclassified as CG13 or CG14), are disclosed as ‘Forborne – not credit impaired’. This may include amendments tocovenants within the contractual terms.

Write-offs of credit impaired instruments and reversal of impairmentTo the extent a financial debt instrument is considered irrecoverable, the applicable portion of the gross carrying valueis written off against the related loan provision. Such loans are written off after all the necessary procedures have beencompleted, it is decided that there is no realistic probability of recovery and the amount of the loss has beendetermined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loanimpairment in the income statement. If, in a subsequent period, the amount of the credit impairment loss decreasesand the decrease can be related objectively to an event occurring after the credit impairment was recognised (such asan improvement in the debtor’s credit rating), the previously recognised credit impairment loss is reversed byadjusting the provision account. The amount of the reversal is recognised in the income statement.

Loss provisions on purchased or originated credit impaired instruments (POCI)The Group measures expected credit loss on a lifetime basis for POCI instruments throughout the life of theinstrument. However, expected credit loss is not recognised in a separate loss provision on initial recognition for POCIinstruments as the lifetime expected credit loss is inherent within the gross carrying amount of the instruments. TheGroup recognises the change in lifetime expected credit losses arising subsequent to initial recognition in the incomestatement and the cumulative change as a loss provision. Where lifetime expected credit losses on POCI instrumentsare less than those at initial recognition, then the favourable differences are recognised as impairment gains in theincome statement (and as impairment loss where the expected credit losses are greater).

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Improvement in credit risk/curingA period may elapse from the point at which instruments enter lifetime expected credit losses (stage 2 or stage 3) andare reclassified back to 12 month expected credit losses (stage 1). For financial assets that are credit-impaired (stage3), a transfer to stage 2 or stage 1 is only permitted where the instrument is no longer considered to becredit-impaired. An instrument will no longer be considered credit-impaired when there is no shortfall of cash flowscompared to the original contractual terms.

For financial assets within stage 2, these can only be transferred to stage 1 when they are no longer considered tohave experienced a significant increase in credit risk.

Where significant increase in credit risk was determined using quantitative measures, the instruments willautomatically transfer back to stage 1 when the original PD based transfer criteria are no longer met. Whereinstruments were transferred to stage 2 due to an assessment of qualitative factors, the issues that led to thereclassification must be cured before the instruments can be reclassified to stage 1. This includes instances wheremanagement actions led to instruments being classified as stage 2, requiring that action to be resolved before loansare reclassified to stage 1.

A forborne loan can only be removed from the disclosure (cured) if the loan is performing (stage 1 or 2) and a furthertwo year probation period is met.

In order for a forborne loan to become performing, the following criteria have to be satisfied:

• At least a year has passed with no default based upon the forborne contract terms

• The customer is likely to repay its obligations in full without realising security

• The customer has no accumulated impairment against amount outstanding

Subsequent to the criteria above, a further two year probation period has to be fulfilled, whereby regular payments aremade by the customer and none of the exposures to the customer are more than 30 days past due.

The following table reconciles the charge for impairment provisions on loans and advances to the total impairmentcharge and other credit risk provision:




Net credit impairment against profit on loans and advances to banks and customers 194 684 681Net credit impairment against profit or loss during the period relating to debt securities (4) 20 –Net credit impairment relating to financial guarantees and loan commitments 24 3 (26)Credit impairment1 214 707 655

1 No material POCI assets

8. Other impairment




Impairment of goodwill (note 15) – 320 –Other impairmentImpairment of fixed assets 47 66 71Impairment losses on fair value through other comprehensive income/available-for-salefinancial assets:

Equity shares – 1 15

Impairment of other intangible assets 21 21 2Other (18) (2) 5

50 86 93

50 406 93

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9. Taxation

The following table provides analysis of taxation charge in the period:




The charge for taxation based upon the profit for the period comprises:Current tax:United Kingdom corporation tax at 19 per cent (31 December 2017 and 30 June 2017: 19.25 percent):

Current tax charge on income for the period 3 – –Adjustments in respect of prior periods (including double tax relief) 46 – 1

Foreign tax:Current tax charge on income for the period 718 370 607Adjustments in respect of prior periods (88) (27) 14

679 343 622Deferred tax:

Origination/reversal of temporary differences (20) 229 (73)Adjustments in respect of prior periods 94 27 (1)

74 256 (74)Tax on profits on ordinary activities 753 599 548

Effective tax rate 32.1% nm1 31.2%

Tax on profits on ordinary activities excluding the impact of US Tax Reform 753 379 548

Effective tax rate excluding the impact of US Tax Reform 32.1% nm1 31.2%

1 Not meaningful

The US Tax Cuts and Jobs Act of 2017, effective from 1 January 2018, reduced the US corporate tax rate from 35 percent to 21 per cent and introduced a Base Erosion and Anti Abuse Tax. The combined impact of these changes in taxrates reduced the US deferred tax asset, increasing the deferred taxation charge for the period ended 31 December2017 by $220 million.

The tax charge for the period of $753 million (31 December 2017: $599 million and 30 June 2017: $548 million) on aprofit before tax of $2,346 million (31 December 2017: $661 million and 30 June 2017: $1,754 million) reflects theimpact of non-deductible expenses and the impact of countries with tax rates higher or lower than the UK, the mostsignificant of which is India.

Foreign tax includes current tax on Hong Kong profits of $103 million (31 December 2017: $87 million and 30 June2017: $80 million) on the profits assessable in Hong Kong.

Deferred tax includes origination or reversal of temporary differences in Hong Kong profits of $(3) million (31December 2017: $6 million and 30 June 2017: $(1) million) provided at a rate of 16.5 per cent (31 December 2017:16.5 per cent and 30 June 2017: 16.5 per cent) on the profits assessable to Hong Kong.

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10. Dividends

The Board considers a number of factors which include the rate of recovery in the Group’s financial performance, themacroeconomic environment, and opportunities to further invest in our business and grow profitably in our markets.

Ordinary equity shares30.06.18 31.12.17 30.06.17

Cents per share $million Cents per share $million Cents per share $million

2017/2016 final dividend declaredand paid during the year1 11.00 363 – – – –

1 The amounts are gross of scrip adjustments

Preference shares and Additional Tier 1 securitiesDividends on these preference shares and securities classified as equity are recorded in the period in which they aredeclared.

30.06.18$million

31.12.17$million

30.06.17$million

Non-cumulative redeemable preference shares: 7.014 per cent preference shares of $5 each 26 26 276.409 per cent preference shares of $5 each 12 15 24

38 41 51Additional Tier 1 securities: $5 billion fixed rate resetting perpetual subordinated contingentconvertible securities 179 179 174

217 220 225

Dividends on these preference shares are treated as interest expense and accrued accordingly.

Non-cumulative irredeemable preference shares: 7 3/8 per cent preference shares of £1 each 5 5 5

8 1/4 per cent preference shares of £1 each 5 6 5

10 11 10

DividendsThe 2017 final dividend of 11 cents per ordinary share $363 million was paid to eligible shareholders on 17 May 2018,and is recognised in these interim accounts.

Interim dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of thefinal dividend, have been approved by the shareholders.

Accordingly, the final ordinary equity share dividends as stated above relate to the prior year. No interim dividend wasdeclared in 2017.

2018 recommended interim dividendThe 2018 interim dividend of 6 cents per share ($198 million) will be paid in pounds sterling, Hong Kong dollars or USdollars on 22 October 2018 to shareholders on the UK register of members at the close of business in the UK on 10August 2018. The 2018 interim dividend will be paid in Indian rupees on 22 October 2018 to Indian Depository Receiptholders on the Indian register at the close of business in India on 10 August 2018.

It is intended that shareholders on the UK register and Hong Kong branch register will be able to elect to receiveshares credited as fully paid instead of all or part of the interim cash dividend. Details of the dividend arrangements willbe sent to shareholders on or around 31 August 2018. Indian Depository Receipt holders will receive their dividend inIndian rupees only.

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11. Earnings per ordinary share

The table below provides the basis of underlying earnings.




Profit for the period attributable to equity holders 1,593 62 1,206

Non-controlling interest (33) (39) (10)Dividend payable on preference shares and AT1 classified as equity (217) (220) (225)

Profit/(loss) for the period attributable to ordinary shareholders 1,343 (197) 971

Items normalised:Restructuring 79 188 165Gains arising on repurchase of subordinated liabilities (69) – –Goodwill impairment (note 8) – 320 –Net loss on business disposed and available-for-sale financial instruments(included within note 5) – (78) –Impact of US Tax Reform (note 9) – 220 –Tax on normalised items1 131 (31) (5)

Underlying profit 1,484 422 1,131

Basic – Weighted average number of shares (millions) 3,303 3,296 3,290Diluted – Weighted average number of shares (millions) 3,337 3,322 3,327

Basic earnings/(loss) per ordinary share (cents) 40.7 (6.0) 29.5Diluted earnings/(loss) per ordinary share (cents) 40.2 (6.0)2 29.2Underlying basic earnings per ordinary share (cents) 44.9 12.8 34.4Underlying diluted earnings per ordinary share (cents) 44.5 12.7 34.0

1 No tax is included in respect of the impairment of goodwill as no tax relief is available2 The impact of any diluted options has been excluded from this amount as required by IAS 33 Earnings per share

12. Financial instruments

Classification and measurement

Accounting policyThe Group classifies its financial assets into the following measurement categories: amortised cost; fair value throughother comprehensive income; and fair value through profit or loss. Financial liabilities are classified as either amortisedcost, or held at fair value through profit or loss. Management determines the classification of its financial assets andliabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.

Financial assets held at amortised cost and fair value through other comprehensive incomeDebt instruments held at amortised cost or held at fair value through other comprehensive income (FVOCI) havecontractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI characteristics).Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrumentas amounts are repaid. Interest consists of consideration for the time value of money, for the credit risk associatedwith the principal amount outstanding during a particular period and for other basic lending risks and costs, as well asa profit margin.

In assessing whether the contractual cash flows have SPPI characteristics, the Group considers the contractual termsof the instrument. This includes assessing whether the financial asset contains a contractual term that could changethe timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment,the Group considers:

• Contingent events that would change the amount and timing of cash flows;

• Leverage features;

• Prepayment and extension terms;

• Terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse assetarrangements); and

• Features that modify consideration of the time value of money – e.g. periodical reset of interest rates.

Whether financial assets are held at amortised cost or at FVOCI depend on the objectives of the business modelsunder which the assets are held. A business model refers to how the Group manages financial assets to generatecash flows.

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The Group makes an assessment of the objective of a business model in which an asset is held at the individualproduct business line, and where applicable within business lines depending on the way the business is managed andinformation is provided to management. Factors considered include:

• How the performance of the product business line is evaluated and reported to the Group’s management;

• How managers of the business model are compensated, including whether management is compensatedbased on the fair value of assets or the contractual cash flows collected;

• The risks that affect the performance of the business model and how those risks are managed; and

• The frequency, volume and timing of sales in prior periods, the reasons for such sales and expectationsabout future sales activity.

The Group’s business model assessment is as follows:

Business model Business objective Characteristics Businesses Products

Hold to collect Intent is to originate financialassets and hold them tomaturity, collecting thecontractual cash flows overthe term of the instrument

• Providing financing andoriginating assets to earn interestincome as primary income stream

• Performing credit riskmanagement activities

• Costs include funding costs,transaction costs and impairmentlosses

• CorporateLending

• CorporateFinance

• TransactionBanking

• Retail Lending• Treasury

Markets (LoansandBorrowings)

• FinancialMarkets(selected)

• Loans andadvances

• Debt securities

Hold to collect andsell

Business objective metthrough both hold tocollect and by selling financialassets

• Portfolios held for liquidity needs;or where a certain interest yieldprofile is maintained; or that arenormally rebalanced to achievematching of duration of assetsand liabilities

• Income streams come frominterest income, fair valuechanges and impairment losses

• TreasuryMarkets

• Derivatives• Debt securities

Fair value throughprofit or loss

All other business objectives,including trading andmanaging financial assets ona fair value basis

• Assets held for trading• Assets that are originated,

purchased, and sold for profittaking or underwriting activity

• Performance of the portfolio isevaluated on a fair value basis

• Income streams are from fairvalue changes or trading gains orlosses

• All otherbusiness lines

• Derivatives• Trading

portfolios• Financial

Marketsreverse repos

Financial assets which have SPPI characteristics and that are held within a business model whose objective is to holdfinancial assets to collect contractual cash flows (hold to collect) are recorded at amortised cost. Conversely, financialassets which have SPPI characteristics but are held within a business model whose objective is achieved by bothcollecting contractual cash flows and selling financial assets (Hold to collect and sell) are classified as held at FVOCI.

Both a hold to collect business model and a hold to collect and sell business model involve holding financial assets tocollect the contractual cash flows. However, the business models are distinct by reference to the frequency andsignificance that asset sales play in meeting the objective under which a particular group of financial assets ismanaged. Hold to collect business models are characterised by asset sales that are incidental to meeting theobjectives under which a group of assets is managed. Sales of assets under a hold to collect business model can bemade to manage increases in the credit risk of financial assets but sales for other reasons should be infrequent orinsignificant.

Cash flows from the sale of financial assets under a hold to collect and sell business model, by contrast, are integral toachieving the objectives under which a particular group of financial assets are managed. This may be the case wherefrequent sales of financial assets are required to manage the Group’s daily liquidity requirements or to meet regulatoryrequirements to demonstrate liquidity of financial instruments. Sales of assets under hold to collect and sell businessmodels are therefore both more frequent and more significant in value than those under the hold to collect model.

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Equity instruments designated as held at FVOCI

Non-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designatedat initial recognition as held at FVOCI on an instrument by instrument basis. Dividends received are recognised inprofit or loss. Gains and losses arising from changes in the fair value of these instruments, including foreign exchangegains and losses, are recognised directly in equity and are never reclassified to profit or loss even on derecognition

Financial assets and liabilities held at fair value through profit or lossFinancial assets which are not held at amortised cost or that are not held at fair value through other comprehensiveincome are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or lossare either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit orloss at initial recognition.

Mandatorily classified at fair value through profit or lossFinancial assets and liabilities which are mandatorily held at fair value through profit or loss are split between twosubcategories as follows:

Trading, including:• Financial assets and liabilities held for trading, which are those acquired principally for the purpose of selling

in the short term; and

• Derivatives.

Non-trading mandatorily at fair value through profit or loss, including:• Instruments in a business which has a fair value business model (see the Group’s business model

assessment) which are not trading or derivatives;

• Hybrid financial assets that contain one or more embedded derivatives;

• Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPIcharacteristics;

• Equity instruments that have not been designated as held at FVOCI; and

• Financial liabilities that constitute contingent consideration in a business combination.

Designated at fair value through profit or lossFinancial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates orsignificantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assetsor liabilities on a different basis (accounting mismatch).

Interest rate swaps have been acquired by the Group with the intention of significantly reducing interest rate risk oncertain debt securities with fixed rates of interest. To significantly reduce the accounting mismatch between assetsand liabilities and measurement bases, these debt securities have been designated at fair value through profit or loss.

Similarly, to reduce accounting mismatches, the Group has designated certain financial liabilities at fair value throughprofit or loss where the liabilities either:

• Have fixed rates of interest and interest rate swaps or other interest rate derivatives have been entered withthe intention of significantly reducing interest rate risk; or

• Are exposed to foreign currency risk and derivatives have been acquired with the intention of significantlyreducing exposure to market changes; or

• Have been acquired to fund trading asset portfolios or assets.

Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair valuebasis or have a bifurcately embedded derivative where the Group is not able to separately value the embeddedderivative component.

Financial liabilities held at amortised costFinancial liabilities that are not financial guarantees or loan commitments and that are not classified as financialliabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

Preference shares which carry a mandatory coupon that represents a market rate of interest at the issue date, orwhich are redeemable on a specific date or at the option of the shareholder are classified as financial liabilities and arepresented in other borrowed funds. The dividends on these preference shares are recognised in the income statementas interest expense on an amortised cost basis using the effective interest method.

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Financial guarantee contracts and loan commitmentsThe Group issues financial guarantee contracts and loan commitments in return for fees. Under a financial guaranteecontract, the Group undertakes to meet a customer’s obligations under the terms of a debt instrument if the customerfails to do so. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions.Financial guarantee contracts and loan commitments issued at below market interest rates are initially recognised asliabilities at fair value, while financial guarantees and loan commitments issued at market rates are recorded offbalance sheet. Subsequently, these instruments are measured at the higher of the expected credit loss provision, andthe amount initially recognised less the cumulative amount of income recognised in accordance with the principles ofIFRS 15 Revenue from Contracts with Customers.

Fair value of financial assets and liabilitiesFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date in the principal market for the asset or liability, or in theabsence of a principal market, the most advantageous market to which the Group has access at the date. The fairvalue of a liability includes the risk that the bank will not be able to honour its obligations.

The fair value of financial instruments is generally measured on the basis of the individual financial instrument.However, when a group of financial assets and financial liabilities is managed on the basis of its net exposure to eithermarket risk or credit risk, the fair value of the group of financial instruments is measured on a net basis.

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market isregarded as active if transactions for the asset or liability take place with sufficient frequency and volume to providepricing information on an ongoing basis. If the market for a financial instrument, and for unlisted securities, is notactive, the Group establishes fair value by using valuation techniques.

Initial recognitionPurchases and sales of financial assets and liabilities held at fair value through profit or loss, and debt securitiesclassified as financial assets held at fair value through other comprehensive income are initially recognised on thetrade date (the date on which the Group commits to purchase or sell the asset). Loans and advances and otherfinancial assets held at amortised cost are recognised on settlement date (the date on which cash is advanced to theborrowers).

All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directlyattributable transaction costs for financial assets which are not subsequently measured at fair value through profit orloss.

In certain circumstances, the initial fair value may be based on a valuation technique which may lead to therecognition of profits or losses at the time of initial recognition. However, these profits or losses can only berecognised when the valuation technique used is based solely on observable market data. In those cases where theinitially recognised fair value is based on a valuation model that uses unobservable inputs, the difference between thetransaction price and the valuation model is not recognised immediately in the income statement but is amortised orreleased to the income statement as the inputs become observable, or the transaction matures or is terminated.

Subsequent measurementFinancial assets and financial liabilities held at amortised costFinancial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using theeffective interest method (see Interest income and expense). Foreign exchange gains and losses are recognised in theincome statement.

Where a financial instrument carried at amortised cost is the hedged item in a qualifying fair value hedge relationship,its carrying value is adjusted by the fair value gain or loss attributable to the hedged risk.

Financial assets held at FVOCIDebt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising fromchanges in fair value (including any related foreign exchange gains or losses) recognised in other comprehensiveincome and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortisedcost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and areaccumulated in equity. On derecognition, the cumulative fair value gains or losses, net of the cumulative expectedcredit loss reserve, are transferred to the profit or loss.

Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and lossesarising from changes in fair value (including any related foreign exchange gains or losses) recognised in othercomprehensive income and accumulated in a separate component of equity. On derecognition, the cumulative

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reserve is transferred to retained earnings and is not recycled to profit or loss.

Financial assets and liabilities held at fair value through profit or lossFinancial assets and liabilities mandatorily held at fair value through profit or loss and financial assets designated at fairvalue through profit or loss are subsequently carried at fair value, with gains and losses arising from changes in fairvalue recorded in the net trading income line in the profit or loss unless the instrument is part of a cash flow hedgingrelationship. Contractual interest income on financial assets held at fair value through profit or loss is recognised asinterest income in a separate line in the profit or loss.

Financial liabilities designated at fair value through profit or lossFinancial liabilities designated at fair value through profit or loss are held at fair value, with changes in fair valuerecognised in the net trading income line in the profit or loss, other than that attributable to changes in credit risk. Fairvalue changes attributable to credit risk are recognised in other comprehensive income and recorded in a separatecategory of reserves unless this is expected to create or enlarge an accounting mismatch, in which case the entirechange in fair value of the financial liability designated at fair value through profit or loss is recognised in profit or loss.

Derecognition of financial instrumentsFinancial assets are derecognised when the rights to receive cash flows from the financial assets have expired orwhere the Group has transferred substantially all risks and rewards of ownership. If substantially all the risks andrewards have been neither retained nor transferred and the Group has retained control, the assets continue to berecognised to the extent of the Group’s continuing involvement.

Where financial assets have been modified, the modified terms are assessed on a qualitative and quantitative basis todetermine whether a fundamental change in the nature of the instrument has occurred, such as whether thederecognition of the pre-existing instrument and the recognition of a new instrument is appropriate.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amountallocated to the portion of the asset derecognised) and the sum of the consideration received (including any new assetobtained less any new liability assumed) and any cumulative gain or loss that had been recognised in othercomprehensive income is recognised in profit or loss except for equity instruments elected FVOCI (see above) andcumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensiveincome.

Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when theobligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However,where a financial liability has been modified, it is derecognised if the difference between the modified cash flows andthe original cash flows is more than 10 per cent.

If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liabilityand the consideration paid is included in other income except for the cumulative fair value adjustments attributable tothe credit risk of a liability that are held in other comprehensive income, which are never recycled to the profit or loss.

Modified financial instrumentsFinancial assets and financial liabilities whose original contractual terms have been modified, including those loanssubject to forbearance strategies, are considered to be modified instruments. Modifications may include changes tothe tenor, cash flows and or interest rates among other factors.

Where derecognition of financial assets is appropriate (see Derecognition), the newly recognised residual loans areassessed to determine whether the assets should be classified as purchased or originated credit impaired assets(POCI).

Where derecognition is not appropriate, the gross carrying amount of the applicable instruments is recalculated as thepresent value of the renegotiated or modified contractual cash flows discounted at the original effective interest rate(or credit-adjusted effective interest rate for POCI financial assets). The difference between the recalculated valuesand the pre-modified gross carrying values of the instruments are recorded as a modification gain or loss in the profitor loss.

Gains and losses arising from modifications for credit reasons are recorded as part of credit impairment (see creditimpairment policy). Modification gains and losses arising for non-credit reasons are recognised either as part of creditimpairment or within income depending on whether there has been a change in the credit risk on the financial assetsubsequent to the modification. Modification gains and losses arising on financial liabilities are recognised withinincome. The movements in the applicable expected credit loss loan positions are disclosed in further detail in Riskreview.

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ReclassificationsFinancial liabilities are not reclassified subsequent to initial recognition. Reclassifications of financial assets are madewhen, and only when, the business model for those assets changes. Such changes are expected to be infrequent andarise as a result of significant external or internal changes such as the termination of a line of business or the purchaseof a subsidiary whose business model is to realise the value of pre-existing held for trading financial assets through ahold to collect model.

Financial assets are reclassified at their fair value on the date of reclassification and previously recognised gains andlosses are not restated. Moreover, reclassifications of financial assets between financial assets held at amortised costand financial assets held at fair value through other comprehensive income do not affect effective interest rate orexpected credit loss computations.

Reclassified from amortised costWhere financial assets held at amortised cost are reclassified to financial assets held at fair value through profit orloss, the difference between the fair value of the assets at the date of reclassification and the previously recognisedamortised cost is recognised in profit or loss.

For financial assets held at amortised cost that are reclassified to fair value through other comprehensive income, thedifference between the fair value of the assets at the date of reclassification and the previously recognised grosscarrying value is recognised in other comprehensive income. Additionally, the related cumulative expected credit lossamounts relating to the reclassified financial assets are reclassified from loan loss provisions to a separate reserve inother comprehensive income at the date of reclassification.

Reclassified from fair value through other comprehensive incomeWhere financial assets held at fair value through other comprehensive income are reclassified to financial assets heldat fair value through profit or loss, the cumulative gain or loss previously recognised in other comprehensive income istransferred to the profit or loss.

For financial assets held at fair value through other comprehensive income that are reclassified to financial assets heldat amortised cost, the cumulative gain or loss previously recognised in other comprehensive income is adjustedagainst the fair value of the financial asset such that the financial asset is recorded at a value as if it had always beenheld at amortised cost. In addition, the related cumulative expected credit losses held within other comprehensiveincome are reversed against the gross carrying value of the reclassified assets at the date of reclassification.

Reclassified from fair value through profit or lossWhere financial assets held at fair value through profit or loss are reclassified to financial assets held at fair valuethrough other comprehensive income or financial assets held at amortised cost, the fair value at the date ofreclassification is used to determine the effective interest rate on the financial asset going forward. In addition, the dateof reclassification is used as the date of initial recognition for the calculation of expected credit losses. Where financialassets held at fair value through profit or loss are reclassified to financial assets held at amortised cost, the fair value atthe date of reclassification becomes the gross carrying value of the financial asset.

The Group’s classification of its financial assets and liabilities is summarised in the following tables.

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IFRS 9

Assets Notes

Assets at fair value

Assetsheld at

amortisedcost

$millionTotal

$millionTrading$million

Derivativesheld forhedging$million

Non-tradingmandatorily at

fair valuethrough profit

or loss$million

Designated atfair value

through profitor loss

$million


comprehensiveincome$million

Total financialassets atfair value$million

Cash and balances at central banks – – – – – – 58,213 58,213Financial assets held at fair valuethrough profit or loss

Loans and advances to banks1 175 – 3,069 – – 3,244 – 3,244Loans and advances to customers1 1,572 – 2,138 – – 3,710 – 3,710Reverse repurchase agreementsand other similar secured lending 14 – – 51,640 – – 51,640 – 51,640Debt securities and other eligible bills 18,785 – 386 367 – 19,538 – 19,538Equity shares 740 – 514 483 – 1,737 – 1,737

21,272 – 57,747 850 – 79,869 – 79,869Derivative financial instruments 13 51,017 763 – – – 51,780 – 51,780Loans and advances to banks1 – – – – – – 55,603 55,603Loans and advances to customers1 – – – – – – 255,100 255,100Reverse repurchase agreements andother similar secured lending 14 – – – – – – 12,781 12,781Investment securities

Debt securities and other eligible bills – – – – 115,965 115,965 6,866 122,831Equity shares – – – – 250 250 – 250

– – – – 116,215 116,215 6,866 123,081Other assets 16 – – – – – – 34,441 34,441Assets held for sale 16 – – – 511 – 511 2 513

Total at 30 June 2018 72,289 763 57,747 1,361 116,215 248,375 423,006 671,381

1 Further analysed in Risk review and Capital review

IFRS 9

Assets Notes

Assets at fair value

Assetsheld at

amortisedcost

$million

Total



Non-tradingmandatorilyat fair value

throughprofit or loss

$million



$million



Totalfinancial

assets atfair value$million

Cash and balances at central banks – – – – – – 58,864 58,864Financial assets held at fair valuethrough profit or loss

Loans and advances to banks1 320 – 2,545 – – 2,865 – 2,865Loans and advances to customers1 1,689 – 2,179 39 – 3,907 – 3,907Reverse repurchase agreements andother similar secured lending 14 – – 45,518 – – 45,518 – 45,518Debt securities and other eligible bills 19,318 – 504 393 – 20,215 – 20,215Equity shares 718 – 684 733 – 2,135 – 2,135

22,045 – 51,430 1,165 – 74,640 – 74,640Derivative financial instruments 13 46,333 698 – – – 47,031 – 47,031Loans and advances to banks1 – – – – – – 57,194 57,194Loans and advances to customers1 – – – – – – 246,941 246,941Reverse repurchase agreements andother similar secured lending 14 – – – – – – 9,667 9,667Investment securities

Debt securities and other eligible bills – – – – 108,411 108,411 7,188 115,599Equity shares – – – – 214 214 – 214

– – – – 108,625 108,625 7,188 115,813Other assets 16 – – – – – – 29,922 29,922Assets held for sale 16 – – – 466 – 466 62 528Total at 1 January 2018 68,378 698 51,430 1,631 108,625 230,762 409,838 640,600


The table above is the representation as at 1 January 2018 of the balances after the implementation of IFRS 9.

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IAS 39

Assets Notes

Assets at fair value Assets at amortised cost

Trading$million


Designated atfair valuethrough

profit or loss$million

Available-for-sale$million

Total financialassets atfair value$million

Loans andreceivables

$million

Held-to-maturity$million

Total$million

Cash and balances at central banks – – – – – 58,864 – 58,864Financial assets held at fair valuethrough profit or loss

Loans and advances to banks1 320 – 2,252 – 2,572 – – 2,572Loans and advances to customers1 1,689 – 1,229 – 2,918 – – 2,918Reverse repurchase agreements andother similar secured lending 14 454 – 458 – 912 – – 912Debt securities and other eligible bills 19,318 – 393 – 19,711 – – 19,711Equity shares 718 – 733 – 1,451 – – 1,451

22,499 – 5,065 – 27,564 – – 27,564Derivative financial instruments 13 46,333 698 – – 47,031 – – 47,031Loans and advances to banks1 – – – – – 57,494 – 57,494Loans and advances to customers1 – – – – – 248,707 – 248,707Reverse repurchase agreements andother similar secured lending 14 – – – – – 54,275 – 54,275Investment securities

Debt securities and other eligible bills – – – 109,161 109,161 2,630 4,340 116,131Equity shares – – – 894 894 – – 894

– – – 110,055 110,055 2,630 4,340 117,025Other assets 16 – – – – – 29,922 – 29,922Assets held for sale 16 – – 466 – 466 62 – 528Total at 31 December 2017 68,832 698 5,531 110,055 185,116 451,954 4,340 641,410


IFRS 9

Liabilities Notes

Liabilities at fair value

Amortisedcost

$millionTotal





$million

Total financialliabilities at

fair value$million

Financial liabilities held at fair value through profit or loss

Deposits by banks – – 387 387 – 387Customer accounts – – 6,232 6,232 – 6,232Repurchase agreements and other similar securedborrowing 14 – – 47,008 47,008 – 47,008Debt securities in issue – – 6,299 6,299 – 6,299Short positions 3,348 – – 3,348 – 3,348

3,348 – 59,926 63,274 – 63,274Derivative financial instruments 13 51,618 1,344 – 52,962 – 52,962Deposits by banks – – – – 30,816 30,816Customer accounts 14 – – – – 382,107 382,107Repurchase agreements and other similar secured borrowing – – – – 5,863 5,863Debt securities in issue – – – – 46,196 46,196Other liabilities 17 – – – – 40,071 40,071Subordinated liabilities and other borrowed funds 20 – – – – 15,047 15,047

Total at 30 June 2018 54,966 1,344 59,926 116,236 520,100 636,336

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IFRS 9

Liabilities Notes


Amortisedcost

$millionTotal



Designated atfair valuethrough



fair value$million


Deposits by banks – – 737 737 – 737Customer accounts – – 5,236 5,236 – 5,236Repurchase agreements and other similar securedborrowing 14 – – 38,140 38,140 – 38,140Debt securities in issue – – 7,023 7,023 – 7,023Short positions 3,637 – – 3,637 – 3,637

3,637 – 51,136 54,773 – 54,773Derivative financial instruments 13 46,558 1,543 – 48,101 – 48,101Deposits by banks – – – – 30,945 30,945Customer accounts – – – – 370,509 370,509Repurchase agreements and other similar secured borrowing 14 – – – – 1,639 1,639Debt securities in issue – – – – 46,379 46,379Other liabilities 17 – – – – 34,982 34,982Subordinated liabilities and other borrowed funds 20 – – – – 17,176 17,176Total at 1 January 2018 50,195 1,543 51,136 102,874 501,630 604,504


IAS 39

Liabilities Notes


Amortisedcost

$millionTotal



Designatedat fair value

throughprofit or loss

$million


fair value$million


Deposits by banks – – 737 737 – 737Customer accounts – – 5,236 5,236 – 5,236Debt securities in issue – – 7,023 7,023 – 7,023Short positions 3,637 – – 3,637 – 3,637

3,637 – 12,996 16,633 – 16,633Derivative financial instruments 13 46,558 1,543 – 48,101 – 48,101Deposits by banks – – – – 30,945 30,945Customer accounts – – – – 370,509 370,509Repurchase agreements and other similar secured borrowing 14 – – – – 39,783 39,783Debt securities in issue – – – – 46,379 46,379Other liabilities 17 – – – – 34,982 34,982Subordinated liabilities and other borrowed funds 20 – – – – 17,176 17,176

Total at 31 December 2017 50,195 1,543 12,996 64,734 539,774 604,508

Loans and advances designated at fair value through profit or lossThe maximum exposure to credit risk for loans and advances to banks and customers and reverse repurchase andother similar secured lending designated at fair value through profit or loss was $nil million (1 January 2018: $39 millionand 31 December 2017: $3,939 million). The net fair value gain on loans and advances to banks and customers andreverse repurchase and other similar secured lending designated at fair value through profit or loss was $nil million (1January 2018: $nil and 31 December 2017: $23 million). Of this, $nil million (1 January 2018: $nil and 31 December2017: $1 million) relates to changes in credit risk. The cumulative fair value loss attributable to changes in credit riskwas $nil million (1 January 2018: $nil and 31 December 2017: $1 million). Further details of the Group’s valuationtechnique is described in this note.

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Financial liabilities designated at fair value through profit or loss30.06.18(IFRS 9)$million

01.01.18(IFRS 9)$million

31.12.17(IAS 39)$million

Carrying balance aggregate fair value 59,926 51,136 12,996Amount contractually obliged to repay at maturity 60,141 51,192 13,052Difference between aggregate fair value and contractually obliged to repay at maturity (215) (56) (56)Cumulative change in fair value accredited to credit risk difference 219 82 82

The net fair value gain on financial liabilities designated at fair value through profit or loss was $165 million for theperiod (31 December 2017: net loss of $202 million). Further details of the Group’s own credit adjustment (OCA)valuation technique is described later in this note.

Valuation of financial instrumentsFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date in the principal market or, in the absence of this, the mostadvantageous market to which the Group has access at that date. The fair value of a liability reflects the Group’snon-performance risk. The fair value of financial instruments is generally measured on the basis of the individualfinancial instrument. However, when a group of financial assets and financial liabilities is managed on the basis of itsnet exposure to either market risks or credit risk, the fair value of the group of financial instruments is measured on anet basis.

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market isregarded as active if transactions for the asset or liability take place with sufficient frequency and volume to providepricing information on an ongoing basis. Wherever possible, fair values have been calculated using unadjusted quotedmarket prices in active markets for identical instruments held by the Group. Where quoted market prices are notavailable, or are unreliable because of poor liquidity, fair values have been determined using valuation techniqueswhich, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs.Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate,comparison with instruments that have characteristics similar to those of the instruments held by the Group.

The Valuation Control function is responsible for independent price verification, oversight of fair value and prudentvalue adjustments and escalation of valuation issues. Independent price verification is the process of determining thatthe valuations incorporated into the financial statements are validated independent of the business area responsiblefor the product. The Valuation Control function has oversight of the fair value adjustments to ensure the financialinstruments are priced to exit. These are key controls in ensuring the material accuracy of the valuations incorporatedin the financial statements. The market data used for price verification may include data sourced from recent tradedata involving external counterparties or third parties such as Bloomberg, Reuters, brokers and consensus pricingproviders. Valuation Control performs a semi-annual review of the suitability of the market data used for price testing.Price verification uses independently sourced data that is deemed most representative of the market the instrumentstrade in. To determine the quality of the market data inputs, factors such as independence, relevance, reliability,availability of multiple data sources and methodology employed by the pricing provider are taken into consideration.

Formal committees for the business clusters, consisting of representatives from Group Market Risk, Product Control,Valuation Control and the business meet monthly to discuss and approve the valuations of the inventory. For PrincipalFinance, the Investment Committee meeting is held on a quarterly basis to review investments and valuations. Thebusiness cluster valuation committees fall under the Valuation Benchmarks Committee as part the of the valuationgovernance structure.

Significant accounting estimates and judgementsThe Group evaluates the significance of financial instruments and material accuracy of the valuations incorporated inthe financial statements as they involve a high degree of judgement and estimation uncertainty in determining thecarrying values of financial assets and liabilities at the balance sheet date.

• Fair value of financial instruments are determined using valuation techniques (see below) which, to the extentpossible, use market observable inputs, but in some cases use non-market observable inputs. Changes inthe observability of significant valuation inputs can materially affect the fair values of financial instruments

• When establishing the exit price of a financial instrument using a valuation technique, the Group considersvaluation adjustments in determining the fair value

• In determining the valuation of financial instruments, the Group makes judgements on the amounts reservedto cater for model and valuation risks, which cover both Level 2 and Level 3 assets, and the significantvaluation judgements in respect of Level 3 instruments

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• Where the measurement of fair value is more judgemental in respect of Level 3 assets, these are valuedbased on models that use a significant degree of non-market-based unobservable inputs

Valuation techniquesRefer to the fair value hierarchy explanation – Level 1, 2 and 3

• Financial instruments held at fair value

– Debt securities – asset backed securities: Asset backed securities are priced based on external prices obtainedfrom consensus pricing providers, broker quotes, recent trades, arrangers’ quotes, etc. Where an observableprice is available for a given security, it is classified as Level 2. In instances where third-party prices are notavailable or reliable, the security is classified as Level 3. The fair value of Level 3 securities is estimated usingmarket standard cash flow models with input parameter assumptions which include prepayment speeds, defaultrates, discount margins derived from comparable securities with similar vintage, collateral type and credit ratings.Therefore, once external pricing has been verified, an assessment is made of whether each security is traded withsignificant liquidity based on its credit rating and sector. If a security is of high credit rating and is traded in a liquidsector, it will be classified as Level 2, otherwise it will be classified as Level 3

– Debt securities in issue: These debt securities relate to structured notes issued by the Group. Whereindependent market data is available through pricing vendors and broker sources, these positions are classifiedas Level 2. Where such liquid external prices are not available, valuations of these debt securities are impliedusing input parameters such as bond spreads and credit spreads, and are classified as Level 3. These inputparameters are determined with reference to the same issuer (if available) or proxies from comparable issuers orassets

– Derivatives: Derivative products are classified as Level 2 if the valuation of the product is based upon inputparameters which are observable from independent and reliable market data sources. Derivative products areclassified as Level 3 if there are significant valuation input parameters which are unobservable in the market, suchas products where the performance is linked to more than one underlying variable. Examples are foreignexchange basket options, equity options based on the performance of two or more underlying indices andinterest rate products with quanto payouts. In most cases these unobservable correlation parameters cannot beimplied from the market, and methods such as historical analysis and comparison with historical levels or otherbenchmark data must be employed

– Equity shares – private equity: The majority of private equity unlisted investments are valued based on earningmultiples – Price-to-Earnings (P/E) or enterprise value to earnings before income tax, depreciation andamortisation (EV/EBITDA) ratios – of comparable listed companies. The two primary inputs for the valuation ofthese investments are the actual or forecast earnings of the investee companies and earning multiples for thecomparable listed companies. To ensure comparability between these unquoted investments and the comparablelisted companies, appropriate adjustments are also applied (for example, liquidity and size) in the valuation. Incircumstances where an investment does not have direct comparables or where the multiples for the comparablecompanies cannot be sourced from reliable external sources, alternative valuation techniques (for example,discounted cash flow models), which use predominantly unobservable inputs or Level 3 inputs, may be applied.Even though earning multiples for the comparable listed companies can be sourced from third-party sources (forexample, Bloomberg), and those inputs can be deemed Level 2 inputs, all unlisted investments (excluding thosewhere observable inputs are available, for example, over-the-counter (OTC) prices) are classified as Level 3 on thebasis that the valuation methods involve judgements ranging from determining comparable companies todiscount rates where the discounted cash flow method is applied

– Loans and advances: These primarily include loans in the global syndications business which were notsyndicated as of the balance sheet date and other financing transactions within Financial Markets and loans andadvances including reverse repurchase that do not have SPPI cash flows or are managed on a fair value basis.These loans are generally bilateral in nature and, where available, their valuation is based on market observablecredit spreads. If observable credit spreads are not available, proxy spreads based on comparable loans withsimilar credit grade, sector and region, are used. Where observable credit spreads and market standard proxymethods are available, these loans are classified as Level 2. Where there are no recent transactions orcomparable loans, these loans are classified as Level 3

– Other debt securities: These debt securities include convertible bonds, corporate bonds, credit and structurednotes. Where quoted prices are available through pricing vendors, brokers or observable trading activities fromliquid markets, these are classified as Level 2 and valued using such quotes. Where there are significant valuationinputs which are unobservable in the market, due to illiquid trading or the complexity of the product, these areclassified as Level 3. The valuations of these debt securities are implied using input parameters such as bond

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– spreads and credit spreads. These input parameters are determined with reference to the same issuer (if available)or proxied from comparable issuers or assets

• Financial instruments held at amortised cost

The following sets out the Group’s basis for establishing fair values of amortised cost financial instruments and theirclassification between Levels 1, 2 and 3. As certain categories of financial instruments are not actively traded, there isa significant level of management judgement involved in calculating the fair values:

– Cash and balances at central banks: The fair value of cash and balances at central banks is their carryingamounts

– Debt securities in issue, subordinated liabilities and other borrowed funds: The aggregate fair values arecalculated based on quoted market prices. For those notes where quoted market prices are not available, adiscounted cash flow model is used based on a current market related yield curve appropriate for the remainingterm to maturity

– Deposits and borrowings: The estimated fair value of deposits with no stated maturity is the amount repayableon demand. The estimated fair value of fixed interest bearing deposits and other borrowings without quotedmarket prices is based on discounted cash flows using the prevailing market rates for debts with a similar creditrisk and remaining maturity

– Investment securities: For investment securities that do not have directly observable market values, the Grouputilises a number of valuation techniques to determine fair value. Where available, securities are valued using inputproxies from the same or closely related underlying (for example, bond spreads from the same or closely relatedissuer) or input proxies from a different underlying (for example, a similar bond but using spreads for a particularsector and rating). Certain instruments cannot be proxies as set out above, and in such cases the positions arevalued using non-market observable inputs. This includes those instruments held at amortised cost andpredominantly relates to asset backed securities. The fair value for such instruments is usually proxies frominternal assessments of the underlying cash flows

– Loans and advances to banks and customers: For loans and advances to banks, the fair value of floating rateplacements and overnight deposits is their carrying amounts. The estimated fair value of fixed interest bearingdeposits is based on discounted cash flows using the prevailing money market rates for debts with a similar creditrisk and remaining maturity. The Group’s loans and advances to the customers’ portfolio is well diversified bygeography and industry. Approximately a quarter of the portfolio re-prices within one month, and approximatelyhalf re-prices within 12 months. Loans and advances are presented net of provisions for impairment. The fairvalue of loans and advances to customers with a residual maturity of less than one year generally approximatesthe carrying value. The estimated fair value of loans and advances with a residual maturity of more than one yearrepresents the discounted amount of future cash flows expected to be received, including assumptions relating toprepayment rates and credit risk. Expected cash flows are discounted at current market rates to determine fairvalue. The Group has a wide range of individual instruments within its loans and advances portfolio and as a resultproviding quantification of the key assumptions used to value such instruments is impractical

– Other assets: Other assets comprise primarily cash collateral and trades pending settlement. The carryingamount of these financial instruments is considered to be a reasonable approximation of fair value as they areeither short term in nature or re-price to current market rates frequently

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Fair value adjustmentsWhen establishing the exit price of a financial instrument using a valuation technique, the Group considersadjustments to the modelled price which market participants would make when pricing that instrument. The mainvaluation adjustments (described further below) in determining fair value for financial assets and financial liabilities areas follows:

30.06.18$million

31.12.17$million

Bid-offer valuation adjustment 78 82CVA 191 229DVA (93) (66)Model valuation adjustment 11 6FVA 61 79Others (including day one) 120 148

Total 368 478

• Bid-offer valuation adjustment: Where market parameters are marked on a mid-market basis in therevaluation systems, a bid offer valuation adjustment is required to quantify the expected cost of neutralisingthe business’ positions through dealing away in the market, thereby bringing long positions to bid and shortpositions to offer. The methodology to calculate the bid-offer adjustment for a derivative portfolio involvesnetting between long and short positions and the grouping of risk by strike and tenor based on the hedgingstrategy where long positions are marked to bid and short positions marked to offer in the systems

• Credit valuation adjustment (CVA): The Group makes CVA adjustments against the fair value of derivativeproducts. CVA is an adjustment to the fair value of the transactions to reflect the possibility that ourcounterparties may default and we may not receive the full market value of the outstanding transactions. Itrepresents an estimate of the adjustment a market participant would include when deriving a purchase priceto acquire our exposures. CVA is calculated for each subsidiary, and within each entity for each counterpartyto which the entity has exposure and takes account of any collateral we may hold. The Group calculates theCVA by applying the probability of default (PD) on the potential estimated future positive exposure of thecounterparty using market-implied PD. Where market-implied data is not readily available, we usemarket-based proxies to estimate the PD. Wrong-way risk arises when the underlying value of the derivativeprior to any CVA is positively correlated to the probability of default by the counterparty and the Group hasimplemented a model to capture this impact for certain key wrong-way exposures. The Group continues toinclude ‘wrong-way risk’ in its unaudited Prudential Valuation Adjustments

• Day one profit and loss: In certain circumstances the initial fair value may be based on a valuation techniquewhich may lead to the recognition of profits or losses at the time of initial recognition. However, these profitsor losses can only be recognised when the valuation technique used is based primarily on observable marketdata. In those cases where the initially recognised fair value is based on a valuation model that uses inputswhich are not observable in the market, the difference between the transaction price and the valuation modelis not recognised immediately in the income statement. The difference is amortised to the income statementuntil the inputs become observable, or the transaction matures or is terminated

• Debit valuation adjustment (DVA): The Group calculates DVA adjustments on its derivative liabilities to reflectchanges in its own credit standing. The Group’s DVA adjustments will increase if its credit standing worsensand conversely, decrease if its credit standing improves. For derivative liabilities, a DVA adjustment isdetermined by applying the Group’s probability of default to the Group’s negative expected exposure againstthe counterparty. The Group’s probability of default and loss expected in the event of default is derived basedon bond spreads associated with the Group’s issuances and market standard recovery levels. The expectedexposure is modelled based on a simulation methodology and is generated through the simulation ofunderlying risk factors over the life of the deals booked against the particular counterparty. This simulationmethodology incorporates the collateral posted by the Group and the effects of master netting agreements.In December 2017, the Group refined its methodology used to calculate DVA to better align with currentindustry practice. This change in calculation methodology is treated as a change in estimate and resulted inan increase in the DVA balance of $66 million

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• Funding valuation adjustment (FVA): The Group makes FVA adjustments against derivative products. FVAreflects an estimate of the adjustment to its fair value that a market participant would make to incorporatefunding costs that could arise in relation to the exposure. FVA is calculated by determining the net expectedexposure at a counterparty level and then applying a funding rate to those exposures that reflect the marketcost of funding. The FVA for collateralised derivatives is based on discounting the expected future cash flowsat the relevant overnight indexed swap (OIS) rate after taking into consideration the terms of the underlyingcollateral agreement with the counterparty. The FVA for uncollateralised (including partially collateralised)derivatives incorporates the estimated present value of the market funding cost or benefit associated withfunding these transactions

• Model valuation adjustment: Valuation models may have pricing deficiencies or limitations that require avaluation adjustment. These pricing deficiencies or limitations arise due to the choice, implementation andcalibration of the pricing model

In addition, the Group calculates own credit adjustment (OCA) on its issued debt designated at fair value, includingstructured notes, in order to reflect changes in its own credit standing. The Group’s OCA adjustments will increase ifits credit standing worsens and conversely, decrease if its credit standing improves. For issued debt and structurednotes designated at fair value, an OCA adjustment is determined by discounting the contractual cash flows using ayield curve adjusted for market observed secondary senior unsecured credit spreads. The OCA is $219 million (2017:$82 million).

Fair value hierarchy – financial instruments held at fair valueAssets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levelsaccording to the observability of the significant inputs used to determine the fair values. Changes in the observabilityof significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fairvalue hierarchy. The Group recognises transfers between levels of the fair value hierarchy when there is a significantchange in either its principal market or the level of observability of the inputs to the valuation techniques as at the endof the reporting period.

• Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets foridentical assets or liabilities

• Level 2: Fair value measurements are those with quoted prices for similar instruments in active markets orquoted prices for identical or similar instruments in inactive markets and financial instruments valued usingmodels where all significant inputs are observable

• Level 3: Fair value measurements are those where at least one input which could have a significant effect onthe instrument’s valuation is not based on observable market data

The following tables show the classification of financial instruments held at fair value into the valuation hierarchy:

133


IFRS 9

AssetsLevel 1$million

Level 2$million

Level 3$million

Total$million

Financial instruments held at fair value through profit or lossLoans and advances to banks – 3,244 – 3,244Loans and advances to customers – 2,880 830 3,710Reverse repurchase agreements and other similar secured lending – 51,585 55 51,640Debt securities and other eligible bills 6,777 12,394 367 19,538Of which:

Government bonds and treasury bills 6,083 5,974 – 12,057Issued by corporates other than financial institutions 29 4,468 367 4,864Issued by financial institutions 665 1,952 – 2,617

Equity shares 900 23 814 1,737

Derivative financial instruments 704 51,033 43 51,780Of which:

Foreign exchange 87 38,873 29 38,989Interest rate 3 11,343 8 11,354Commodity 614 456 3 1,073Credit – 304 – 304Equity and stock index – 57 3 60

Investment securitiesDebt securities and other eligible bills 66,943 48,461 561 115,965


Of which:

Government bonds and treasury bills 54,247 19,278 400 73,925Issued by corporates other than financial institutions 3,032 10,585 161 13,778Issued by financial institutions 9,664 18,598 – 28,262

Equity shares 36 4 210 250

Total financial instruments at 30 June 2018 75,360 169,624 2,880 247,864

Liabilities

Financial instruments held at fair value through profit or lossDeposits by banks – 383 4 387Customer accounts – 6,232 – 6,232Repurchase agreements and other similar secured borrowing – 47,008 – 47,008Debt securities in issue – 5,971 328 6,299Short positions 1,821 1,527 – 3,348


Foreign exchange 296 38,471 4 38,771Interest rate 22 11,606 20 11,648Commodity 668 772 – 1,440Credit – 1,064 – 1,064Equity and stock index – 33 6 39

Total financial instruments at 30 June 2018 2,807 113,067 362 116,236

There have been no significant changes to valuation or levelling approaches in 2018.

There are no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2during the period.

134


IFRS 9


Level 2$million

Level 3$million

Total$million

Financial instruments held at fair value through profit or lossLoans and advances to banks – 2,794 71 2,865Loans and advances to customers – 3,190 717 3,907Reverse repurchase agreements and other similar secured lending – 45,518 – 45,518Debt securities and other eligible bills 5,860 13,924 431 20,215Of which:

Government bonds and treasury bills 4,988 5,529 – 10,517Issued by corporates other than financial institutions 171 4,115 280 4,566Issued by financial institutions 701 4,280 151 5,132

Equity shares 1,035 – 1,100 2,135


Foreign exchange 97 35,641 17 35,755Interest rate 2 10,065 7 10,074Commodity 303 609 2 914Credit – 249 – 249Equity and stock index – 25 14 39

Investment securitiesDebt securities and other eligible bills 61,083 47,010 318 108,411Of which:

Government bonds and treasury bills 51,095 21,417 318 72,830Issued by corporates other than financial institutions 5,647 7,061 – 12,708Issued by financial institutions 4,341 18,532 – 22,873

Equity shares 59 5 150 214Total financial instruments at 1 January 2018 68,439 159,030 2,827 230,296

Liabilities

Financial instruments held at fair value through profit or lossDeposits by banks – 668 69 737Customer accounts – 5,236 – 5,236Repurchase agreements and other similar secured borrowing – 38,140 – 38,140Debt securities in issue – 6,581 442 7,023Short positions 1,495 2,142 – 3,637


Foreign exchange 90 36,149 – 36,239Interest rate 9 9,851 18 9,878Commodity 371 590 – 961Credit – 871 2 873Equity and stock index – 145 5 150

Total financial instruments at 1 January 2018 1,965 100,373 536 102,874


135


IAS 39


Level 2$million

Level 3$million

Total$million

Financial instruments held at fair value through profit or lossLoans and advances to banks – 2,501 71 2,572Loans and advances to customers – 2,792 126 2,918Reverse repurchase agreements and other similar secured lending – 912 – 912Debt securities and other eligible bills 5,860 13,800 51 19,711Of which:

Government bonds and treasury bills 4,988 5,531 – 10,519Issued by corporates other than financial institutions 171 4,017 48 4,236Issued by financial institutions 701 4,252 3 4,956

Equity shares 725 – 726 1,451


Foreign exchange 97 35,641 17 35,755Interest rate 2 10,065 7 10,074Commodity 303 609 2 914Credit – 249 – 249Equity and stock index – 25 14 39

Investment securitiesDebt securities and other eligible bills 61,246 47,511 404 109,161Of which:

Government bonds and treasury bills 51,257 21,364 318 72,939Issued by corporates other than financial institutions 5,648 7,590 86 13,324Issued by financial institutions 4,341 18,557 – 22,898

Equity shares 369 5 520 894Total financial instruments at 31 December 2017 68,602 114,110 1,938 184,650

Liabilities

Financial instruments held at fair value through profit or loss

Deposits by banks – 668 69 737Customer accounts – 5,236 – 5,236Debt securities in issue – 6,581 442 7,023Short positions 1,495 2,142 – 3,637


Foreign exchange 90 36,149 – 36,239Interest rate 9 9,851 18 9,878Commodity 371 590 – 961Credit – 871 2 873Equity and stock index – 145 5 150

Total financial instruments at 31 December 2017 1,965 62,233 536 64,734

There were no significant changes to valuation or levelling approaches in 2017.

There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2during 2017.

136


Fair value hierarchy – financial instruments measured at amortised costThe following table shows the carrying amounts and incorporates the Group’s estimate of fair values of those financialassets and liabilities not presented on the Group’s balance sheet at fair value. These fair values may be different fromthe actual amount that will be received or paid on the settlement or maturity of the financial instrument. For certaininstruments, the fair value may be determined using assumptions for which no observable prices are available.

IFRS 9

Carrying value$million

Fair value

Level 1$million

Level 2$million

Level 3$million

Total$million

AssetsCash and balances at central banks1 58,213 – 58,213 – 58,213Loans and advances to banks 55,603 – 55,202 301 55,503Loans and advances to customers 255,100 – 12,884 242,876 255,760Reverse repurchase agreements and other similar securedlending 12,781 – 9,652 3,147 12,799Investment securities 6,866 – 6,796 8 6,804Other assets1 34,441 – 34,443 – 34,443Assets held for sale 2 – 2 – 2

At 30 June 2018 423,006 – 177,192 246,332 423,524

LiabilitiesDeposits by banks 30,816 – 30,818 – 30,818Customer accounts 382,107 – 382,143 – 382,143Repurchase agreements and other similar secured borrowing 5,863 – 5,758 105 5,863Debt securities in issue 46,196 15,623 30,574 – 46,197Subordinated liabilities and other borrowed funds 15,047 14,924 – – 14,924Other liabilities1 40,071 – 40,071 – 40,071

At 30 June 2018 520,100 30,547 489,364 105 520,016

IFRS 9


Fair value

Level 1$million

Level 2$million

Level 3$million

Total$million

AssetsCash and balances at central banks1 58,864 – 58,864 – 58,864Loans and advances to banks 57,194 – 57,166 4 57,170Loans and advances to customers 246,941 – 15,285 232,394 247,679Reverse repurchase agreements and other similarsecured lending 9,667 – 7,506 2,174 9,680Investment securities 7,188 – 7,133 86 7,219Other assets1 29,922 – 29,911 – 29,911Assets held for sale 62 – 62 – 62

At 1 January 2018 409,838 – 175,927 234,658 410,585

LiabilitiesDeposits by banks 30,945 – 30,939 – 30,939Customer accounts 370,509 – 370,489 – 370,489Repurchase agreements and other similar secured borrowing 1,639 – 1,639 – 1,639Debt securities in issue 46,379 15,264 30,158 – 45,422Subordinated liabilities and other borrowed funds 17,176 17,456 161 – 17,617Other liabilities1 34,982 – 34,982 – 34,982

At 1 January 2018 501,630 32,720 468,368 – 501,088

1 The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current marketrates frequently


137


IAS 39


Fair value

Level 1$million

Level 2$million

Level 3$million

Total$million

AssetsCash and balances at central banks1 58,864 – 58,864 – 58,864Loans and advances to banks 57,494 – 57,388 4 57,392Loans and advances to customers 248,707 – 14,644 234,812 249,456Reverse repurchase agreements and other similar securedlending 54,275 – 23,068 31,218 54,286Investment securities 6,970 – 6,955 36 6,991Other assets1 29,922 – 29,922 – 29,922Assets held for sale 62 – 62 – 62

At 31 December 2017 456,294 – 190,903 266,070 456,973LiabilitiesDeposits by banks 30,945 – 30,939 – 30,939Customer accounts 370,509 – 370,489 – 370,489Repurchase agreements and other similar secured borrowing 39,783 – 39,783 – 39,783Debt securities in issue 46,379 15,264 30,158 – 45,422Subordinated liabilities and other borrowed funds 17,176 17,456 161 – 17,617Other liabilities1 34,982 – 34,982 – 34,982

At 31 December 2017 539,774 32,720 506,512 – 539,232

1 The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current marketrates frequently

Level 3 Summary and significant unobservable inputsThe following table presents the Group’s primary Level 3 financial instruments which are held at fair value. The tablealso presents the valuation techniques used to measure the fair value of those financial instruments, the significantunobservable inputs, the range of values for those inputs and the weighted average of those inputs:

Instrument

Value at 30 June 2018

Principal valuation technique Significant unobservable inputs Range1Weightedaverage2

Assets$million

Liabilities$million

Reverse repurchase agreements andother similar secured lending

55 – Discounted cash flows Repo rate 0.0% to 11.0% 2.7%

Loans and advances to customers 830 – Comparable pricing/yield Price/yield 4.8% 4.8%

Discounted cash flows Recovery rates 24.3% to 100.0% 93.9%

Debt securities 212 – Comparable pricing/yield Price/yield N/A N/A

Asset backed securities 316 – Discounted cash flows Price/yield 1.0% to 5.8% 4.0%

Deposits by banks – 4 Discounted cash flows Credit spreads 1.0% 1.0%

Debt securities in issue – 328 Discounted cash flows Credit spreads 0.3% to 4% 1.5%

Government bonds and treasury bills 400 – Discounted cash flows Price/yield 2.8% to 32.7% 10.6%

Derivative financial instrumentsof which:Foreign exchange 29 4 Option pricing model Foreign exchange option

implied volatility5.0% to 7.5% 5.8%

Discounted cash flows Foreign exchange curves 3.9% to 5.0% 4.2%Interest rate 8 20 Discounted cash flows Interest rate curves 3.5% to 19.2% 11.7%Commodities 3 – Internal pricing model Commodities correlation 90.0% to 93.8% 93.1%Equity 3 6 Internal pricing model Equity correlation 7.0% to 88.0% N/A

Equity-FX correlation -85.0% to 85.0% N/A

Equity shares (includes privateequity investments)3

1,024 – Comparable pricing/yield EV/EBITDA multiples 5.5x to 17.2x 10.1x

P/E multiples 13.0x to 15.1x 14.2xP/B multiples 1.3x 1.3xP/S multiples 2.3x 2.3xLiquidity discount 10.0% to 20.0% 17.3%

Discounted cash flows Discount rates 8.6% to 14.0% 11.6%Total 2,880 362

1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group’s Level 3 financial instruments as at 30 June 2018. Theranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, theseranges of values may not represent the uncertainty in fair value measurements of the Group’s Level 3 financial instruments

2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided byweighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator

3 The Group has an equity investment in the Series B preferred shares of Ripple Labs, Inc., which owns a digital currency (XRP) and is being carried at a fair value based on the shares’initial offering price. The shares will continue to be valued at the initial offering price until such time as a reliable means of valuing the cash flows and underlying assets is possible oradditional sales are observable

138


The following section describes the significant unobservable inputs identified in the valuation technique table:

• Commodities correlation: This refers to the correlation between two commodity underlyings over a specifiedtime

• Comparable price/yield is a valuation methodology in which the price of a comparable instrument is used toestimate the fair value where there are no direct observable prices. Yield is the interest rate that is used todiscount the future cash flows in a discounted cash flow model. Valuation using comparable instruments canbe done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparableinstrument, then adjusting that yield (or spread) to derive a value for the instrument. The adjustment shouldaccount for relevant differences in the financial instruments such as maturity and/or credit quality.Alternatively, a price-to-price basis can be assumed between the comparable instrument and the instrumentbeing valued in order to establish the value of the instrument (for example, deriving a fair value for a juniorunsecured bond from the price of a senior secured bond). An increase in price, in isolation, would result in afavourable movement in the fair value of the asset. An increase in yield, in isolation, would result in anunfavourable movement in the fair value of the asset

• Correlation is the measure of how movement in one variable influences the movement in another variable. Anequity correlation is the correlation between two equity instruments while an interest rate correlation refers tothe correlation between two swap rates

• Credit spread represents the additional yield that a market participant would demand for taking exposure tothe credit risk of an instrument

• Discount rate refers to the rate of return used to convert expected cash flows into present value

• EV/EBITDA ratio multiples: This is the ratio of Enterprise Value (EV) to Earnings Before Interest, Taxes,Depreciation and Amortisation (EBITDA). EV is the aggregate market capitalisation and debt minus the cashand cash equivalents. An increase in EV/EBITDA multiples in isolation, will result in a favourable movement inthe fair value of the unlisted firm

• Interest rate curves is the term structure of interest rates and measure of future interest rates at a particularpoint in time

• Liquidity discounts in the valuation of unlisted investments: A liquidity discount is primarily applied to thevaluation of unlisted firms’ investments to reflect the fact that these stocks are not actively traded. Anincrease in liquidity discount will result in unfavourable movement in the fair value of the unlisted firm

• Price-Book (P/B) multiple: This is the ratio of the market value of equity to the book value of equity. Anincrease in P/B multiple will result in a favourable movement in the fair value of the unlisted firm

• Price-Earnings (P/E) multiples: This is the ratio of the market value of equity to the net income after tax. Themultiples are determined from multiples of listed comparables, which are observable. An increase in P/Emultiple will result in a favourable movement in the fair value of the unlisted firm

• Price-Sales (P/S) multiple: This is the ratio of the market value of equity to sales. An increase in P/S multiplewill result in a favourable movement in the fair value of the unlisted firm

• Recovery rates are the expectation of the rate of return resulting from the liquidation of a particular loan. Asthe probability of default increases for a given instrument, the valuation of that instrument will increasinglyreflect its expected recovery level assuming default. An increase in the recovery rate, in isolation, would resultin a favourable movement in the fair value of the loan

• Volatility represents an estimate of how much a particular instrument, parameter or index will change in valueover time. Generally, the higher the volatility, the more expensive the option will be

139


Level 3 movement tables – financial assetsThe table below analyses movements in Level 3 financial assets carried at fair value.

Assets

Held at fair value through profit or loss

Derivativefinancial

instruments$million

Investment securities

Loans andadvances to

banks$million


customers$million

Reverserepurchaseagreements

and othersimilar

securedlending

Debtsecurities andother eligible

bills$million

Equity shares$million

Debtsecurities andother eligible

bills$million

Equity shares$million

Total$million

At 31 December 2017 – IAS 39 71 126 – 51 726 40 404 520 1,938Transfer due to IFRS 91 – 591 – 380 374 – (86) (370) 889At 1 January 2018 – IFRS 9 71 717 – 431 1,100 40 318 150 2,827Total (losses)/gains recognised inincome statement – (50) – (5) (35) (1) 10 – (81)

Net interest income – – – – – – 10 – 10Net trading income – (50) – (5) (35) (1) – – (91)Other operating income – – – – – – – – –Impairment charge – – – – – – – – –

Total (losses)/gains recognised inother comprehensive income – – – – – – (7) 29 22

Fair value through OCI reserve – – – – – – – 30 30Exchange difference – – – – – – (7) (1) (8)

Purchases – 188 55 76 119 29 341 23 831Sales – (19) – (110) (144) (11) – – (284)Settlements (71) (54) – – – (11) (101) – (237)Transfers out2 – – – (25) (226) (3) – – (254)Transfers in3 – 48 – – – – – 8 56

At 30 June 2018 – 830 55 367 814 43 561 210 2,880

Total unrealised gains recognisedin the income statement, withinnet interest income, relating tochange in fair value of assetsheld at 30 June 2018 – – – – – – – 30 30

Total unrealised (losses)/gainsrecognised in the incomestatement, within net tradingincome, relating to change infair value of assets held at 30June 2018 – (38) – (2) (28) 1 – – (67)

1 The increase in level three instruments is a result of loans and debt securities that failed SPPI, with unobservable valuation inputs. Further, level three equity shares which wereclassified as available-for-sale equity under IAS 39 are now classified as fair value through profit or loss under IFRS 9

2 Transfers out include debt securities and other eligible bills, equity shares and derivative financial instruments where the valuation parameters became observable during the period,and were transferred to Level 1 and Level 2

3 Transfers in primarily relate to loans and advances and equity shares where the valuation parameters became unobservable during the period

140


Level 3 movement tables – financial assetsThe table below analyses movements in Level 3 financial assets carried at fair value.

Assets

Held at fair value through profit or loss

Derivativefinancial

instruments$million

Investment securities


banks$million


customers$million

Debtsecuritiesand other

eligible bills$million

Equityshares

$million

Debtsecuritiesand other

eligible bills$million

Equityshares

$millionTotal

$million

At 1 January 2017 – 179 4 995 360 199 549 2,286Total (losses)/gains recognised inincome statement (1) (11) (2) 121 (4) (15) (9) 79

Net interest income – – – – – (15) – (15)Net trading income (1) (11) (2) 121 (4) – (1) 102Other operating income – – – – – – 9 9Impairment charge – – – – – – (17) (17)

Total gains recognised in othercomprehensive income – – – – – 7 54 61

Available-for-sale reserve – – – – – – 41 41Exchange difference – – – – – 7 13 20

Purchases – – 94 1113 6 399 22 632Sales – – (20) (254) (13) (1) (91) (379)Settlements – – – – (250) (169) – (419)Transfers out1 – (72) (25) (247)3 (61) (16) (5) (426)Transfers in2 72 30 – – 2 – – 104

At 31 December 2017 71 126 51 726 40 404 520 1,938

Total unrealised losses recognised in theincome statement, within net interest income,relating to change in fair value of assets heldat 31 December 2017 – – – – – (15) – (15)

Total unrealised (losses)/gains recognised inthe income statement, within net tradingincome, relating to change in fair value ofassets held at 31 December 2017 (1) (5) (2) 65 (7) – (1) 49

Total unrealised losses recognised in theincome statement, within impairment chargesat 31 December 2017 – – – – – – (17) (17)

1 Transfers out include debt securities, equity shares and derivative financial instruments where the valuation parameters became observable during the year, and were transferredto Level 1 and Level 2. Transfers out further relate to equity shares and debt securities held at fair value through profit or loss which are now presented under held for sale

2 Transfers in during the year primarily relate to loans and advances and derivative financial instruments where the valuation parameters become unobservable during the year3 When an entity is consolidated through a step up in ownership, the additional equity shares acquired are disclosed in the purchases line. Subsequently, these shares are eliminated

on consolidation and disclosed in the transfer out line. Any underlying Level 3 financial instruments which are recognised as a result of the consolidation are disclosed in thetransfer in line

141


Level 3 movement tables – financial liabilities30.06.18

Depositsby banks

$million

Debtsecurities

in issue$million

Derivativefinancial

instruments$million

Total$million

At 1 January 2018 69 442 25 536Total losses/(gains) recognised in income statement – net trading income 2 (16) (9) (23)Issues – 1 14 15Settlements (67) (99) (3) (169)Transfers in1 – – 3 3

At 30 June 2018 4 328 30 362

Total unrealised gains recognised in the income statement, within net tradingincome, relating to change in fair value of liabilities held at 30 June 2018 – (13) (5) (18)

1 Transfers in primarily relate to derivative financial instruments where the valuation parameters became unobservable during the period

31.12.17

Depositsby banks

$million

Debtsecurities

in issue$million

Derivativefinancial

instruments$million

Total$million

At 1 January 2017 – 530 316 846Total gains recognised in income statement – net trading income – (9) (24) (33)Issues 79 274 1 354Settlements (10) (353) (266) (629)Transfers out1 – – (2) (2)

At 31 December 2017 69 442 25 536

Total unrealised gains recognised in the income statement, within net tradingincome, relating to change in fair value of liabilities held at 31 December 2017 – – (17) (17)

1 Transfers out during the year primarily relate to derivative financial instruments where the valuation parameters became observable during the year and were transferred to Level 2financial liabilities

Sensitivities in respect of the fair values of Level 3 assets and liabilitiesSensitivity analysis is performed on products with significant unobservable inputs. The Group applies a 10 per centincrease or decrease on the values of these unobservable inputs, to generate a range of reasonably possiblealternative valuations. The percentage shift is determined by statistical analyses performed on a set of reference pricesbased on the composition of our Level 3 assets. Favourable and unfavourable changes are determined on the basis ofchanges in the value of the instrument as a result of varying the levels of the unobservable parameters. This Level 3sensitivity analysis assumes a one-way market move and does not consider offsets for hedges.

Held at fair value through profit or loss Fair value through OCI/available-for-sale


Favourablechanges$million

Unfavourablechanges$million


Favourablechanges$million

Unfavourablechanges$million

Financial instruments held at fair valueReverse repurchase agreements and othersimilar secured lending 55 55 55 – – –Debt securities and other eligible bills 367 377 357 561 580 542Equity shares 814 895 733 210 231 189Loans and advances 830 854 804 – – –Derivative financial instruments 13 19 6 – – –Deposits by banks (4) (3) (5) – – –Debt securities in issue (328) (309) (347) – – –

At 30 June 2018 1,747 1,888 1,603 771 811 731

Financial instruments held at fair valueDebt securities and other eligible bills 51 56 46 404 415 393Equity shares 726 799 653 520 572 468Loans and advances 197 201 194 – – –Derivative financial instruments 15 17 12 – – –Deposits by banks (69) (68) (70) – – –Debt securities in issue (442) (434) (450) – – –

At 31 December 2017 478 571 385 924 987 861

142


The reasonably possible alternatives could have increased or decreased the fair values of financial instruments held atfair value through profit or loss and those classified as fair value through OCI/available-for-sale by the amountsdisclosed below.

Financial instruments Fair value changes30.06.2018

$million31.12.2017

$million

Held at fair value through profit or loss Possible increase 141 93

Possible decrease (144) (93)

Fair value through OCI/available-for-sale Possible increase 40 63

Possible decrease (40) (63)

13. Derivative financial instruments

The tables below analyse the notional principal amounts and the positive and negative fair values of derivativefinancial instruments. Notional principal amounts are the amounts of principal underlying the contract at the reportingdate.

Derivatives

30.06.18 31.12.17

Notional principalamounts$million

Assets$million Liabilities $million


Assets$million

Liabilities$million

Foreign exchange derivative contracts:Forward foreign exchange contracts 2,261,144 21,235 20,947 1,825,488 18,905 19,702Currency swaps and options 891,237 17,754 17,824 724,0211 16,850 16,537Exchange traded futures and options 100 – – 100 – –

3,152,481 38,989 38,771 2,549,609 35,755 36,239

Interest rate derivative contracts:Swaps 3,508,901 9,914 10,139 2,831,025 8,603 8,414Forward rate agreements and options 532,182 1,259 1,341 153,697 1,351 1,364Exchange traded futures and options 956,396 181 168 637,883 120 100

4,997,479 11,354 11,648 3,622,605 10,074 9,878

Credit derivative contracts 37,891 304 1,064 34,772 249 873

Equity and stock index options 2,424 60 39 2,520 39 150

Commodity derivative contracts 119,425 1,073 1,440 74,133 914 961

Total derivatives 8,309,700 51,780 52,962 6,283,639 47,031 48,101

1 Currency swaps and options were previously reported on a gross basis. In line with industry practice, these are now reported on a single leg basis. Prior year comparatives have beenre-presented accordingly

The Group limits exposure to credit losses in the event of default by entering into master netting agreements withcertain market counterparties. As required by IAS 32, exposures are only presented net in these accounts where theyare subject to legal right of offset and intended to be settled net in the ordinary course of business.

Derivatives held for hedgingIncluded in the table above are derivatives held for hedging purposes as follows:

30.06.18 31.12.17


Assets$million

Liabilities$million


Assets$million

Liabilities$million

Derivatives designated as fair valuehedges:Interest rate swaps 51,954 334 482 45,420 456 272Currency swaps 9,521 79 721 14,3951 174 899

61,475 413 1,203 59,815 630 1,171

Derivatives designated as cash flowhedges:Interest rate swaps 10,949 81 80 13,348 43 48Forward foreign exchange contracts 205 – 18 356 2 29Currency swaps 2,413 36 43 2,987 23 107

13,567 117 141 16,691 68 184

Derivatives designated as net investmenthedges:Forward foreign exchange contracts 5,514 233 – 3,470 – 188

Total derivatives held for hedging 80,556 763 1,344 79,976 698 1,543

1 Currency swaps were previously reported on a gross basis. In line with industry practice, these are now reported on a single leg basis. Prior year comparatives have beenre-presented accordingly

143


14. Reverse repurchase and repurchase agreements including other similar secured lending and borrowing

Accounting policyThe Group purchases securities (a reverse repurchase agreement – ‘reverse repo’) typically with financial institutionssubject to a commitment to resell or return the securities at a predetermined price. These securities are not included inthe balance sheet as the Group does not acquire the risks and rewards of ownership, however are recorded offbalance sheet as collateral received. Consideration paid (or cash collateral provided) is accounted for as a loan assetat amortised cost, unless it is managed on a fair value basis or it is designated at fair value through profit or loss.

The Group also sells securities (a repurchase agreement – ‘repo’) subject to a commitment to repurchase or redeemthe securities at a predetermined price. The securities are retained on the balance sheet as the Group retainssubstantially all the risks and rewards of ownership and these securities are disclosed as pledged collateral.Consideration received (or cash collateral received) is accounted for as a financial liability at amortised cost, unless it iseither mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit or lossat initial recognition.

Financial assets are pledged as collateral as part of sales and repurchases, securities borrowing and securitisationtransactions under terms that are usual and customary for such activities. The Group is obliged to return equivalentsecurities.

Repo and reverse repo transactions typically entitle the Group and its counterparties to have recourse to assetssimilar to those provided as collateral in the event of a default. Securities sold subject to repos, either by way of aGlobal Master Repurchase Agreement (GMRA), or through a securities sale and Total Return Swap (TRS) continue tobe recognised on the balance sheet as the Group retains substantially the associated risks and rewards of thesecurities (the TRS is not recognised). The counterparty liability is included in deposits by banks or customeraccounts, as appropriate. Assets sold under repurchase agreements are considered encumbered as the groupcannot pledge these to obtain funding.

Reverse repurchase agreements and other similar secured lending

30.06.18$million

01.01.18$million

31.12.17$million

Banks 26,512 21,257 21,259Customers 37,909 33,928 33,928

64,421 55,185 55,187

Of which:Fair value through profit or loss 51,640 45,518 912

Banks 17,962 16,157 565Customers 33,678 29,361 347

Held at amortised cost 12,781 9,667 54,275

Banks 8,550 5,099 20,694Customers 4,231 4,568 33,581

Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms whichpermit it to repledge or resell the securities to others. Amounts on such terms are:

30.06.18$million

01.01.18$million

31.12.17$million

Securities and collateral received (at fair value) 85,855 75,088 75,088

Securities and collateral which can be repledged or sold (at fair value) 81,367 72,982 72,982

Amounts repledged/transferred to others for financing activities, to satisfy liabilities undersale and repurchase agreements (at fair value) 42,028 34,018 34,018

144


Repurchase agreements and other similar secured borrowing30.06.18$million

01.01.18$million

31.12.17$million

Banks 6,196 3,804 3,804Customers 46,675 35,975 35,979

52,871 39,779 39,783

Of which:Fair value through profit or loss 47,008 38,140 –

Banks 3,320 3,352 –Customers 43,688 34,788 –

Held at amortised cost 5,863 1,639 39,783

Banks 2,876 451 3,804Customers 2,987 1,188 35,979

The tables below set out the financial assets provided as collateral for repurchase and other secured borrowing:

Collateral pledged against repurchase agreements

30.06.18

Fair value throughprofit or loss

$million



Amortisedcost

$millionTotal

$million

On-balance sheetDebt securities and other eligible bills 3,434 7,327 516 11,277

Off-balance sheetRepledged collateral received – – 42,028 42,028

At 30 June 2018 3,434 7,327 42,544 53,305


01.01.18

Fair valuethrough




Amortisedcost

$millionTotal

$million

On-balance sheetDebt securities and other eligible bills 2,178 3,618 – 5,796


At 1 January 2018 2,178 3,618 34,018 39,814


31.12.17

Fair valuethrough


Available for sale$million

Loans andreceivables

$millionTotal

$million

On-balance sheetDebt securities and other eligible bills 2,178 3,618 – 5,796


At 31 December 2017 2,178 3,618 34,018 39,814

145


15. Goodwill and intangible assets30.06.18 31.12.17

Goodwill$million

Acquiredintangibles

$million

Computersoftware$million

Total$million

Goodwill$million

Acquiredintangibles

$million


Total$million

Cost 3,187 559 2,616 6,362 3,252 578 2,529 6,359Provision for amortisation – 461 927 1,388 – 470 876 1,346

Net book value 3,187 98 1,689 4,974 3,252 108 1,653 5,013

30.06.17

Goodwill$million

Acquiredintangibles

$million


Total$million

Cost 3,552 576 2,128 6,256Provision for amortisation – 455 767 1,222

Net book value 3,552 121 1,361 5,034

At 30 June 2018, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $2,801 million(31 December 2017: $2,801 million), of which nil was recognised in 2018 (31 December 2017: $320 million).

Outcome of impairment assessmentAt 30 June 2018, the Group performed a review of the goodwill that has been assigned to the Group’s cashgenerating units for indicators of impairment, considering whether there were any reduced expectations for futurecash flows and/or fluctuations in the discount rate or the assumptions. The results of this review indicated that there isno goodwill impairment to be recognised.

It continues to be possible that certain scenarios could be constructed where a combination of a material change inthe discount rate coupled with a reduction in current business plan forecasts or the GDP growth rate would potentiallyresult in the carrying amount of goodwill exceeding the recoverable amount in the future. Refer to note 18, Goodwilland intangible assets, in the 2017 Annual Report.

16. Other assets

30.06.18$million

31.12.17$million

Financial assets held at amortised cost (note 12):Hong Kong SAR Government certificates of indebtedness (note 17)1 5,704 5,417Cash collateral 10,002 9,513Acceptances and endorsements 5,138 5,096Unsettled trades and other financial assets 13,597 9,896

34,441 29,922Non-financial assets:

Commodities2 4,312 3,263Other assets 315 305

39,068 33,490

1 The Hong Kong SAR Government certificates of indebtedness are subordinated to the claims of other parties in respect of bank notes issued2 Commodities are carried at fair value and classified as Level 2

Assets held for saleNon-current assets are classified as held for sale and measured at the lower of their carrying amount and fair valueless cost to sell when:

a) Their carrying amounts will be recovered principally through sale

b) They are available-for-sale in their present condition

c) Their sale is highly probable

Immediately before the initial classification as held for sale, the carrying amounts of the assets are measured inaccordance with the applicable accounting policies related to the asset or liability before reclassification as held forsale.

146


The assets below have been presented as held for sale following the approval of Group management and thetransactions are expected to complete in 2018.

Assets held for sale30.06.18$million

31.12.17$million

Non-current assetsLoans and advances to customers 2 2Financial assets held at fair value through profit or loss 511 466Debt securities held at amortised cost – 60Property, plant and equipment 145 13Others 2 4

660 545

Assets held for sale include:

• Principal Finance assets of $511 million, classified as financial assets held at fair value through profit or losscomprising debt securities ($84 million) and equity shares ($427 million), expected to be disposed of by theend of 2018

• Two aircraft classified as held for sale by Pembroke Air Leasing Finance for $136 million includedwithin property, plant and equipment

The assets reported above are classified under Level 3.

17. Other liabilities

30.06.18$million

31.12.17$million

Financial liabilities held at amortised cost (note 12)Notes in circulation1 5,704 5,417Acceptances and endorsements 5,138 5,096Cash collateral 10,631 9,825Unsettled trades and other financial liabilities 18,598 14,644

40,071 34,982Non-financial liabilities

Cash-settled share-based payments 35 39Other liabilities 438 236

40,544 35,257

1 Hong Kong currency notes in circulation of $5,704 million (2017: $5,417 million) that are secured by the government of Hong Kong SAR certificates of indebtedness of the sameamount included in other assets (note 16)

18. Contingent liabilities and commitments

The table below shows the contract or underlying principal amounts of unmatured off-balance sheet transactions atthe balance sheet date. The contract or underlying principal amounts indicate the volume of business outstanding anddo not represent amounts at risk.

30.06.18$million

31.12.17$million

Contingent liabilitiesGuarantees and irrevocable letters of credit 37,422 37,311Other contingent liabilities 5,116 6,210

42,538 43,521

CommitmentsDocumentary credits and short-term trade-related transactions 4,021 3,880Undrawn formal standby facilities, credit lines and other commitments to lend

One year and over 47,604 43,730Less than one year 20,618 20,160Unconditionally cancellable 115,168 113,584

187,411 181,354

Capital commitmentsContracted capital expenditure approved by the directors but not provided for in these accounts 252 468

The Group’s share of contingent liabilities and commitments relating to joint ventures is $0.2 billion (31 December2017: $0.2 billion).

The Group has commitments totalling $243 million to purchase aircraft for delivery in 2018 (31 December 2017: $458million).

147


As set out in note 19, the Group has contingent liabilities in respect of certain legal and regulatory matters for which itis not practicable to estimate the financial impact as there are many factors that may affect the range of possibleoutcomes.

19. Legal and regulatory matters

Claims and other proceedingsThe Group receives legal claims against it in a number of jurisdictions and is subject to regulatory investigations andproceedings arising in the normal course of business.

Apart from the matters described below, the Group currently considers none of these claims, investigations orproceedings to be material.

2012 Settlements with certain US authoritiesIn 2012, the Group reached settlements with certain US authorities regarding US sanctions compliance in the period2001 to 2007, involving a Consent Order by the New York Department of Financial Services (NYDFS), a Cease andDesist Order by the Board of Governors of the Federal Reserve System (Fed), Deferred Prosecution Agreements(DPAs) with each of the Department of Justice (DOJ) and the New York County District Attorney’s Office (DANY) and aSettlement Agreement with the Office of Foreign Assets Control (together, the ‘Settlements’ and together theforegoing authorities, the ‘US authorities’). In addition to the civil penalties totalling $667 million, the terms of theseSettlements include a number of conditions and ongoing obligations with regard to improving sanctions, Anti-MoneyLaundering (AML) and Bank Secrecy Act (BSA) controls such as remediation programmes, reporting requirements,compliance reviews and programmes, banking transparency requirements, training measures, audit programmes,disclosure obligations and, in connection with the NYDFS Consent Order, the appointment of an independent monitor(Monitor). These obligations are managed under a programme of work referred to as the US Supervisory RemediationProgram (SRP). The SRP comprises work streams designed to ensure compliance with the remediation requirementscontained in all of the Settlements and the Group is engaged with all relevant authorities to implement theseprogrammes and meet the Group’s obligations under the Settlements.

On 9 December 2014, the Group announced that the DOJ, DANY and the Group had agreed to a three-yearextension of the DPAs until 10 December 2017, resulting in the subsequent retention of the Monitor to evaluate andmake recommendations regarding the Group’s sanctions compliance programme. On 9 November 2017, the Groupannounced extension of the DPAs until 28 July 2018 and on 27 July 2018, the Group announced the further extensionof the DPAs until 31 December 2018.

The November 2017 and July 2018 DPA extension agreements noted that the Group had taken a number of stepsand made significant progress to comply with the requirements of the DPA and enhance its sanctions complianceprogramme, but that the programme had not at the time reached the standard required by the DPA. The Group iscommitted to ongoing cooperation with the authorities and to continuing to implement a comprehensive programmeof improvements to its financial crime controls.

2014 Settlement with NYDFSOn 19 August 2014, the Group announced that it had reached a final settlement with the NYDFS regardingdeficiencies in the AML transaction surveillance system in its New York branch (the ‘Branch’). The system, which isseparate from the sanctions screening process, is one part of the Group’s overall financial crime controls and isdesigned to alert the Branch to unusual transaction patterns that require further investigation on a post-transactionbasis.

The settlement provisions are summarised as follows:

(i) A civil monetary penalty of $300 million

(ii) Enhancements to the transaction surveillance system at the Branch

(iii) A two-year extension to the term of the Monitor (which, on 21 April 2017, was further extended to operate until 31December 2018)

(iv) A set of temporary remediation measures, which will remain in place until the transaction surveillance system’sdetection scenarios are operating to a standard approved by the Monitor. These temporary remediation measuresinclude a restriction on opening, without prior approval of the NYDFS, a US dollar demand deposit account for anyclient that does not already have such an account with the Branch, a restriction on US dollar-clearing services forcertain clients in Hong Kong and enhanced monitoring of certain high-risk clients in the UAE.

The remit of the SRP covers the management of these obligations.

148


Other ongoing investigations and reviewsThe Group continues to cooperate with an investigation by the US authorities relating to historical violations of USsanctions laws and regulations. In contrast to the 2012 settlements, which focused on the period before the Group’s2007 decision to stop doing new business with known Iranian parties, the ongoing investigation is focused onexamining the extent to which conduct and control failures permitted clients with Iranian interests to conducttransactions through Standard Chartered Bank after 2007 and the extent to which any such failures were shared withrelevant US authorities in 2012.

The Group is engaged in ongoing discussions with the relevant US authorities regarding the resolution of thisinvestigation, and such resolution may involve a range of civil and criminal penalties for sanctions complianceviolations including substantial monetary penalties combined with other compliance measures such as remediationrequirements and/or business restrictions.

It is not practicable to estimate the financial impact of these matters as there are many factors that may affect therange of possible outcomes; however, the resulting financial impact could be substantial.

Standard Chartered Bank is also engaged with the Financial Conduct Authority (FCA) to resolve the FCA investigationconcerning Standard Chartered Bank’s financial crime controls. The investigation has been focused on theeffectiveness and governance of those controls from 2009 through 2014 within the correspondent banking businesscarried out by Standard Chartered Bank’s London branch, particularly in relation to the business carried on withrespondent banks from outside the European Economic Area, and the effectiveness and governance of those controlsin one of Standard Chartered Bank’s overseas branches and the oversight exercised at Group level over thosecontrols. Standard Chartered Bank has accepted that there were weaknesses in certain aspects of its relevantfinancial crime controls during the relevant period of the investigation and is engaging with the FCA on terms of theresolution of the investigation. Resolution of the investigation could involve a substantial monetary penalty and othercivil measures available to the FCA.

As part of their remit to oversee market conduct, regulators and other agencies in certain markets are conductinginvestigations or requesting reviews into a number of areas of regulatory compliance and market conduct, includingsales and trading, involving a range of financial products, and submissions made to set various market interest ratesand other financial benchmarks, such as foreign exchange. At relevant times, certain of the Group’s branches and/orsubsidiaries were (and are) participants in some of those markets, in some cases submitting data to bodies that setsuch rates and other financial benchmarks. The Group continues to respond to inquiries and investigations by relevantauthorities and is facing regulatory investigations and proceedings in various jurisdictions related to foreign exchangetrading. There may be penalties or other financial consequences to the Group as a result.

The Securities and Futures Commission (SFC) in Hong Kong has been investigating Standard Chartered Securities(Hong Kong) Limited’s (SCSHK) role as a joint sponsor of an initial public offering of China Forestry Holdings Limited,which was listed on the Hong Kong Stock Exchange in 2009. The SFC is pursuing disciplinary action against SCSHK,and there may be financial consequences for SCSHK in connection with this action.

20. Subordinated liabilities and other borrowed funds30.06.18

USD$million

GBP$million

EUR$million

Others$million

Total$million

Fixed rate subordinated debt 9,828 1,472 3,033 525 14,858Floating rate subordinated debt 161 16 – 12 189

Total 9,989 1,488 3,033 537 15,047

31.12.17

USD$million

GBP$million

EUR$million

Others$million

Total$million

Fixed rate subordinated debt 9,497 3,297 3,136 1,057 16,987Floating rate subordinated debt 161 16 – 12 189

Total 9,658 3,313 3,136 1,069 17,176

149


Redemptions and repurchases during the periodOn 19 March 2018, Standard Chartered Bank Korea Limited redeemed KRW90 billion 6.05 per cent subordinateddebt 2018 on its maturity.

On 3 April 2018, Standard Chartered Bank redeemed £700m 7.75 per cent subordinated notes 2018 on its maturity.

On 10 April 2018, Standard Chartered Bank exercised its right to redeem SGD450 million 5.25 per cent subordinatednotes 2023 (callable 2018).

On 18 April 2018, Standard Chartered Bank exercised its right to redeem JPY10 billion 3.35 per cent subordinatednotes 2023 (callable 2018).

On 14 June 2018, Standard Chartered Bank repurchased in part, £95.1 million of its £200 million 7.75 per centsubordinated notes (callable 2022).

On 14 June 2018, Standard Chartered PLC repurchased in part, £372.5 million of its £900 million 5.125 per centsubordinated debt 2034.

Issuances during the periodOn 15 March 2018, Standard Chartered PLC issued $500 million 4.866 per cent subordinated debt 2033 (callable2028).

21. Share capital, other equity and reserves

Group and Company

Number ofordinary shares

millions

Ordinaryshare capital1

$million

Sharepremium2

$million

Totalshare capital &share premium

$million


$million

At 1 January 2017 3,284 1,642 5,449 7,091 3,969Shares issued 7 4 – 4 992

At 30 June 2017 3,291 1,646 5,449 7,095 4,961Shares issued 5 2 – 2 –

At 31 December 2017 3,296 1,648 5,449 7,097 4,961Capitalised on scrip dividend 2 1 – 1 –Shares issued 6 3 – 3 –At 30 June 2018 3,304 1,652 5,449 7,101 4,961

1 Issued and fully paid ordinary shares of 50 cents each2 Includes $1,494 million of share premium relating to preference capital

Ordinary share capitalIn accordance with the Companies Act 2006, the Company does not have authorised share capital. The nominal valueof each ordinary share is 50 cents.

On 17 May 2018, the Company issued 1,354,700 new ordinary shares instead of the 2017 final dividend.

During the period, 6,203,572 shares were issued under employee share plans at prices between nil and 620 pence.

Preference share capitalAt 30 June 2018, the Company has 15,000 $5 non-cumulative redeemable preference shares in issue, with a premiumof $99,995 making a paid up amount per preference share of $100,000. The preference shares are redeemable at theoption of the Company and are classified in equity.

The available profits of the Company are distributed to the holders of the issued preference shares in priority topayments made to holders of the ordinary shares and in priority to, or pari passu with, any payments to the holders ofany other class of shares in issue. On a winding up, the assets of the Company are applied to the holders of thepreference shares in priority to any payment to the ordinary shareholders and in priority to, or pari passu with, theholders of any other shares in issue, for an amount equal to any dividends accrued and/or payable and the nominalvalue of the shares together with any premium as determined by the Board. The redeemable preference shares areredeemable at the paid up amount (which includes premium) at the option of the Company in accordance with theterms of the shares. The holders of the preference shares are not entitled to attend or vote at any general meetingexcept where any relevant dividend due is not paid in full or where a resolution is proposed varying the rights of thepreference shares.

150


Other equity instrumentsOn 2 April 2015, Standard Chartered PLC issued $2,000 million Fixed Rate Resetting Perpetual SubordinatedContingent Convertible Securities as Additional Tier 1 (AT1) securities, raising $1,987 million after issue costs. On 18August 2016, Standard Chartered PLC issued a further $2,000 million Fixed Rate Resetting Perpetual SubordinatedContingent Convertible Securities as AT1 securities, raising $1,982 million after issue costs. On 18 January 2017,Standard Chartered PLC issued a further $1,000 million Fixed Rate Resetting Perpetual Subordinated ContingentConvertible Securities as AT1 securities, raising $992 million after issue costs. All the issuances were made for generalbusiness purposes and to increase the regulatory capital base of the Group.

The principal terms of the AT1 securities are described below:

• The securities are perpetual and redeemable, at the option of Standard Chartered PLC in whole but not inpart, on the first interest reset date and each date falling five years after the first reset date

• The securities are also redeemable for certain regulatory or tax reasons on any date at 100 per cent of theirprincipal amount together with any accrued but unpaid interest upto (but excluding) the date fixed forredemption. Any redemption is subject to Standard Chartered PLC giving notice to the relevant regulator andthe regulator granting permission to redeem

• The interest rate in respect of the securities issued on 2 April 2015 for the period from (and including) theissue date to (but excluding) 2 April 2020 is a fixed rate of 6.50 per cent per annum. The first reset date for theinterest rate is 2 April 2020 and each date falling five, or an integral multiple of five years after the first resetdate

• The interest rate in respect of the securities issued on 18 August 2016 for the period from (and including) theissue date to (but excluding) 2 April 2022 is a fixed rate of 7.50 per cent per annum. The first reset date for theinterest rate is 2 April 2022 and each date falling five years, or an integral multiple of five years, after the firstreset date

• The interest rate in respect of the securities issued on 18 January 2017 for the period from (and including) theissue date to (but excluding) 2 April 2023 is a fixed rate of 7.75 per cent per annum. The first reset date for theinterest rate is 2 April 2023 and each date falling five years, or an integral multiple of five years, after the firstreset date

• The interest on each of the securities will be payable semi-annually in arrears on 2 April and 2 October in eachyear, accounted for as a dividend

• Interest on the securities is due and payable only at the sole and absolute discretion of Standard CharteredPLC, subject to certain additional restrictions set out in the terms and conditions. Accordingly, StandardChartered PLC may at any time elect to cancel any interest payment (or part thereof) which would otherwisebe payable on any interest payment date

• The securities convert into ordinary shares of Standard Chartered PLC, at a pre-determined price, should thefully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 572 millionordinary shares would be required to satisfy the conversion of all the securities mentioned above

The securities rank behind the claims against Standard Chartered PLC of (a) unsubordinated creditors; (b) which areexpressed to be subordinated to the claims of unsubordinated creditors of Standard Chartered PLC but not further orotherwise; or (c) which are, or are expressed to be, junior to the claims of other creditors of Standard Chartered PLC,whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari passu with, orjunior to, the claims of holders of the AT1 securities in a winding–up occurring prior to the conversion trigger.

ReservesThe constituents of the reserves are summarised as follows:

• The capital reserve represents the exchange difference on redenomination of share capital and sharepremium from sterling to US dollars in 2001. The capital redemption reserve represents the nominal value ofpreference shares redeemed

• Merger reserve represents the premium arising on shares issued using a cash box financing structure, whichrequired the Company to create a merger reserve under section 612 of the Companies Act 2006. Shareswere issued using this structure in 2005 and 2006 to assist in the funding of certain acquisitions, in 2008,2010 and 2015, for the shares issued by way of a rights issue, and for the shares issued in 2009 in theplacing. The funding raised by the 2008 and 2010 rights issues and 2009 share issue was fully retained withinthe Company

151


• Own credit adjustment reserve represents the cumulative gains and losses on financial liabilities designatedat fair value through profit or loss relating to own credit. Following the Group’s decision to early apply thisIFRS 9 requirement the cumulative OCA component of financial liabilities designated at fair value throughprofit or loss has been transferred from opening retained earnings to the OCA reserve. Gains and losses onfinancial liabilities designated at fair value through profit or loss relating to own credit in the year have beentaken through other comprehensive income into this reserve. On derecognition of applicable instruments thebalance of any OCA will not be recycled to the income statement, but will be transferred within equity toretained earnings

• Fair value through OCI debt reserve represents the unrealised fair value gains and losses in respect offinancial assets classified as fair value through OCI, net of expected credit losses and taxation. Gains andlosses are deferred in this reserve and are reclassified to the income statement when the underlying asset issold, matures or becomes impaired. Fair value through OCI equity reserve represents unrealised fair valuegains and losses in respect of financial assets classified as fair value through OCI, net of taxation. Gains andlosses are recorded in this reserve and never recycled to the income statement

• Cash flow hedge reserve represents the effective portion of the gains and losses on derivatives that meet thecriteria for these types of hedges. Gains and losses are deferred in this reserve and are reclassified to theincome statement when the underlying hedged item affects profit and loss or when a forecast transaction isno longer expected to occur

• Translation reserve represents the cumulative foreign exchange gains and losses on translation of the netinvestment of the Group in foreign operations. Since 1 January 2004, gains and losses are deferred to thisreserve and are reclassified to the income statement when the underlying foreign operation is disposed.Gains and losses arising from derivatives used as hedges of net investments are netted against the foreignexchange gains and losses on translation of the net investment of the foreign operations

• Retained earnings represents profits and other comprehensive income earned by the Group and Company inthe current and prior periods, together with the after tax increase relating to equity-settled share options, lessdividend distributions and own shares held (treasury shares).

A substantial part of the Group’s reserves are held in overseas subsidiary undertakings and branches, principally tosupport local operations or to comply with local regulations. The maintenance of local regulatory capital ratios couldpotentially restrict the amount of reserves which can be remitted. In addition, if these overseas reserves were to beremitted, further unprovided taxation liabilities might arise.

As at 30 June 2018, the distributable reserves of Standard Chartered PLC (the Company) were $15.1 billion (31December 2017: $15.1 billion). These comprised retained earnings and $12.5 billion of the merger reserve account.Distribution of reserves is subject to maintaining minimum capital requirements.

Own sharesComputershare Trustees (Jersey) Limited is the trustee of the 2004 Employee Benefit Trust (‘2004 Trust’) and OcorianTrustees (Jersey) Limited (formerly known as Bedell Trustees Limited) is the trustee of the 1995 Employees’ ShareOwnership Plan Trust (‘1995 Trust’). The 2004 Trust is used in conjunction with the Group’s employee share schemesand the 1995 Trust is used for the delivery of other employee share-based payments (such as upfront shares andfixed pay allowances). Group companies fund these trusts from time to time to enable the trustees to acquire sharesto satisfy these arrangements.

Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities ofthe Company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchasedand held by the trusts are set out below.

Number of shares

1995 Trust 2004 Trust Total

30.06.18 31.12.17 30.06.17 30.06.18 31.12.17 30.06.17 30.06.18 31.12.17 30.06.17

Shares purchased during theperiod – – – – – – – – –

Market price of sharespurchased ($million) – – – – – – – – –

Shares held at the end of theperiod 1,336,879 3,769,011 3,769,011 16,755 18,004 34,262 1,353,634 3,787,015 3,803,273

Maximum number of sharesheld during the period 3,787,015 3,803,273 6,182,467

152


22. Retirement benefit obligations

Retirement benefit obligations comprise:

30.06.18$million

31.12.17$million

30.06.17$million

Total market value of assets 2,506 2,592 2,391Present value of the plans’ liabilities (2,838) (3,035) (2,919)

Defined benefit plans obligation (332) (443) (528)Defined contribution plans obligation (16) (12) (26)

Net obligation (348) (455) (554)

Retirement benefit charge comprises:




Defined benefit plans 41 63 35Defined contribution plans 146 138 121

Charge against profit (note 6) 187 201 156

The pension cost for defined benefit plans was:Current service cost 35 37 36Past service cost and curtailments – 6 (9)Gain on settlements – 7 –Interest income on pension plan assets (35) (34) (32)Interest on pension plan liabilities 41 47 40Total charge to profit before deduction of tax 41 63 35

Losses/(returns) on plan assets excluding interest income 31 (80) (33)(Gains)/losses on liabilities (136) 19 62Total (gains)/ losses recognised directly in statement of comprehensive income before tax (105) (61) 29Deferred taxation 6 19 16

Total losses after tax (99) (42) 45

23. Related party transactions

Directors, connected persons or officersAs at 30 June 2018, Standard Chartered Bank had in place a charge over $73 million (31 December 2017: $75 million,30 June 2017: $72 million) of cash assets in favour of the independent trustee of its employer-financed retirementbenefit scheme.

There were no changes in the related party transactions descibed in the Annual Report 2017 that have had a materialeffect on the financial position or performance of the Group in the period ended 30 June 2018. All related partytransactions that have taken place in the period ended 30 June 2018 were similar in nature to those disclosed in theAnnual Report 2017.

Associate and joint ventures30.06.18 31.12.17

China BohaiBank

$million

CliffordCapital$million

PT BankPermata$million

China BohaiBank

$million

CliffordCapital$million

PT BankPermata$million

AssetsLoans and advances – – 61 – 50 95Debt securities – 27 – – 27 –Derivative assets 2 – – 1 – –

Total assets 2 27 61 1 77 95

LiabilitiesDeposits 576 – 73 219 – 29Debt securities issued 15 – – 15 – –Total liabilities 591 – 73 234 – 29

Loan commitments and other guarantees – 50 – – – –Total net income 3 – 2 5 – 6

153


24. Post balance sheet events

An interim dividend for half year 2018 of 6 cents per ordinary share was declared by the directors on 31 July 2018.

25. Corporate governance

The directors confirm that, throughout the period, the Company has complied with the code provisions set out in theCorporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules. The directors also confirmthat the announcement of these results has been reviewed by the Company’s Audit Committee. The Companyconfirms that it has adopted a code of conduct regarding securities transactions by directors on terms no lessexacting than the required standard set out in Appendix 10 of the Hong Kong Listing Rules and that having madespecific enquiry of all directors, the directors of the Company have complied with the required standards of theadopted code of conduct throughout the period.

As previously announced, since 31 December 2017, there has been one change to a position on the Board. ChristineHodgson, Chairman of the Remuneration Committee and member of the Audit, Governance and Nomination, Brand,Values and Conduct and Board Financial Crime Risk Committees, took over from Naguib Kheraj as SeniorIndependent Director on 1 February 2018. Naguib Kheraj remains as Deputy Chairman, Chairman of the AuditCommittee and member of the Board Risk, Board Financial Crime Risk, Remuneration and Governance andNomination Committees. Biographies for each of the directors and a list of the committees’ membership can be foundat sc.com.

In compliance with Rule 13.51B(1) of the Hong Kong Listing Rules, the Company confirms that Dr NgoziOkonjo-Iweala, Independent Non-Executive Director, was appointed to the Board of Twitter, Inc. as an independentdirector with effect from 19 July 2018.

26. Statutory accounts

The information in this half year report is unaudited and does not constitute statutory accounts within the meaning ofsection 434 of the Companies Act 2006. This document was approved by the Board on 31 July 2018. The statutoryaccounts for the year ended 31 December 2017 have been audited by the Company’s auditors and delivered to theRegistrar of Companies in England and Wales. The report of the auditors was (i) unqualified, (ii) did not include areference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and(iii) did not contain a statement under section 498 of the Companies Act 2006.

154


27. Transition to IFRS 9 Financial Instruments

Balance sheetIAS 39 31

December 2017$million

Classification &measurement

$million

Expectedcredit losses

$millionOther impacts

$million

IFRS 91 January 2018

$million

Cash and balances at central banks 58,864 – – – 58,864Financial assets held at fair value through profit or loss 27,564 47,076 – – 74,640Derivative financial instruments 47,031 – – – 47,031Loans and advances to banks 57,494 (293) (7) – 57,194Loans and advances to customers1 248,707 (951) (815) – 246,941Reverse repurchase agreements and other similar securedlending 54,275 (44,608) – – 9,667Investment securities 117,025 (1,193) (19) – 115,813Other assets 33,490 – – – 33,490Current tax assets 491 – – 1 492Prepayments and accrued income 2,307 – – – 2,307Interests in associates and joint ventures 2,307 – – (52) 2,255Goodwill and intangible assets 5,013 – – – 5,013Property, plant and equipment 7,211 – – – 7,211Deferred tax assets 1,177 – – 125 1,302Assets classified as held for sale 545 – – – 545Total assets 663,501 31 (841) 74 662,765

Deposits by banks 30,945 – – – 30,945Customer accounts 370,509 – – – 370,509Repurchase agreements and other similar secured borrowing 39,783 (38,144) – – 1,639Financial liabilities held through profit or loss 16,633 38,140 – – 54,773Derivative financial instruments 48,101 – – – 48,101Debt securities in issue 46,379 – – – 46,379Other liabilities 35,257 – – – 35,257Current tax liabilities 376 – – (10) 366Accruals and deferred income 5,493 – – – 5,493Subordinated liabilities and other borrowed funds 17,176 – – – 17,176Deferred tax liabilities 404 – – (37) 367Provisions for liabilities and charge1 183 – 176 – 359Retirement benefit obligations 455 – – – 455

Total liabilities 611,694 (4) 176 (47) 611,819

Share capital and share premium account 7,097 – – – 7,097Other reserves 12,767 (165) 65 (7) 12,660Retained earnings1 26,641 200 (1,074) 128 25,895

Total parent company shareholders’ equity 46,505 35 (1,009) 121 45,652Other equity instruments 4,961 – – – 4,961Total equity excluding non-controlling interests 51,466 35 (1,009) 121 50,613Non-controlling interests 341 – (8) – 333

Total equity 51,807 35 (1,017) 121 50,946

Total equity and liabilities 663,501 31 (841) 74 662,765

1 The Group’s initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of the Group’s expected loss models, the estimate of theopening credit impairment provisions has been revised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earningshas similarly decreased by $222 million to $(1,074) million

155


Statement of changes in equityShare

capital andshare

premiumaccount$million

Capital andmerger

reserves$million


reserve$million


Fair valuethrough

OCIreserve$million

Cash flowhedge

reserve$million



Parentcompany


$million


$million

Non-controlling

interests$million

Total$million

As at 31 December2017 7,097 17,129 54 83 – (45) (4,454) 26,641 46,505 4,961 341 51,807Net impact of: – – – (83) (82) – – 200 35 – – 35

IFRS 9 reclassifications1 – – – (83) (86) – – 169 – – – –IFRS 9re-measurements2 – – – – 4 – – 31 35 – – 35

Expected credit loss,net3 – – – – 65 – – (1,074) (1,009) – (8) (1,017)Tax impact4 – – – – (6) – – 179 173 – – 173Impact of IFRS 9 onshare of joint venturesand associates, net oftax – – – – (1) – – (51) (52) – – (52)Estimated IFRS 9transition adjustments – – – (83) (24) – – (746) (853) – (8) (861)As at 1 January 2018 7,097 17,129 54 – (24) (45) (4,454) 25,895 45,652 4,961 333 50,946

1 Available-for-sale category has been removed under IFRS 9. Unrealised gains and losses have been transferred to fair value through other comprehensive income (FVOCI) reserves,or retained earnings where the instruments are held as FVTPL. The FVOCI reserve includes a $187 million loss in respect of equity securities designated as FVOCI, partly offset by $18million gain on debt securities designated as FVOCI

2 The remeasurement impact of financial assets that are now measured at fair value under IFRS 93 Impact from adopting expected credit losses. Gross impact is estimated at $1,082 million (comprising $1,074 million in retained earnings and $8 million in non-controlling interests).

As FVOCI debt instruments are held at fair value on the balance sheet, the expected credit loss charged to retained earnings is recognised as a credit to the FVOCI reserve. The netFVOCI reserve relating to FVOCI debt instruments will be recycled to the income statement on disposal of the instruments

4 Tax of $173 million has been credited to reserves as a result of transition to IFRS 9. Of this, deferred tax of $142 million has been credited to retained earnings, and is provided onadditional deductible temporary differences that have arisen from loss provisions due to initial adoption of the expected credit loss approach

Impact of moving from an incurred loss approach to an expected credit loss approach1 January 2018

Loss allowances per IAS 39 Expected credit loss per IFRS 9

Increase/(decrease)

$million

Portfolioimpairmentprovisions

$million

Individualimpairmentprovisions

$millionTotal

$millionStage 1$million

Stage 2$million

Stage 3$million

Total$million

Corporate & Institutional Banking 156 3,466 3,622 105 394 3,433 3,932 310Retail Banking 208 275 483 382 178 389 949 466Commercial Banking 99 1,431 1,530 39 93 1,369 1,501 (29)Private Banking 2 67 69 8 1 91 100 31Central & other items – – – 4 – – 4 4

Total loans and advances to customers1 465 5,239 5,704 538 666 5,282 6,486 782Loans and advances to banks 1 4 5 6 2 4 12 7Financial guarantees – 77 77 6 16 77 99 22Debt securities and other eligible bills –amortised cost – 114 114 3 16 213 232 118Debt securities and other eligible bills –FVOCI – – – 23 42 – 65 65

Total 466 5,434 5,900 576 742 5,576 6,894 994

1 Includes both drawn and undrawn commitments

156


Movement in loss provisions

Debtsecurities$ million

FVOCI debtsecurities$ million

Loans tobanks

$ million

Loans tocustomers

$ million

Provisions for liabilitiesand charges

Total$ million

Undrawncommitments

$ millionGuarantees

$ million

Total IAS 39 loss provisions 114 – 5 5,7021 21 77 5,900Loss provisions reclassified to FVTPL (109) – – (122) – – (231)Modification losses netted against gross exposure – – – (65) – – (65)

Adjusted IAS 39 loss provisions 5 – 5 5,515 2 77 5,604Additional expected credit loss provisions 19 65 7 815 154 22 1,082

Total IFRS 9 impairment provisions 24 65 12 6,3302 1562 99 6,686

Estimated net expected credit loss movement (90) 65 7 628 154 22 786

1 Total IAS 39 loss allowances ($5,704 million) applied to loans and advances to customers as previously reported2 Total IFRS 9 expected credit losses ($6,486 million) applied to loans and advances to customers

Impact on Non-performing loans to customers and banks1

Corporate &Institutional Banking

$million




Total$million

GrossAt 31 December 2017 5,957 489 2,026 207 8,679Modified loans (39) – (26) – (65)Performing forborne (impaired) – 329 – – 329Reclassified (62) – (40) – (102)

At 1 January 2018 (stage 3) 5,856 818 1,960 207 8,841

Credit impairment provisionsAt 31 December 2017 (IAS 39 IIP) 3,468 2152 1,431 67 5,181Modified loans (39) – (26) – (65)Performing forborne (impaired) – 60 – – 60Reclassified to FVTPL (81) – (40) – (121)Additional expected credit loss 1 114 6 – 121GSAM multiple scenario provisions 88 – (2) 24 110At 1 January 2018 (stage 3) 3,437 3892 1,369 91 5,286

IAS 39 PIP at 31 December 2017 157 208 99 2 466

Collateral at 31 December 2017 1,111 218 277 203 1,809

Non-performing cover ratios:At 31 December 2017 (IAS 39) 61% 87% 75% 33% 65%At 31 December 2017 (IAS 39, excluding PIP) 58% 44% 71% 32% 60%At 1 January 2018 (IFRS 9) 59% 48% 70% 44% 60%

At 31 December 2017 (IAS 39, including collateral) 77% 89% 84% 100% 81%At 1 January 2018 (IFRS 9, including collateral) 78% 74% 84% 100% 80%

Of the above, included in the liquidation portfolio:Gross 1,945 – 125 156 2,226

Credit impairment provisions (IAS 39) 1,388 – 123 62 1,573Additional provisions (IFRS 9) 29 – – 24 53

At 1 January 2018 (Stage 3) 1,417 – 123 86 1,626Non-performing cover ratios:At 31 December 2017 (IAS 39) 71% – 98% 40% 71%At 1 January 2018 (IFRS 9) 73% – 98% 55% 73%

At 31 December 2017 (IAS 39, including collateral) 84% – 98% 100% 86%At 1 January 2018 (IFRS 9, including collateral) 85% – 98% 100% 88%

1 Includes FVTPL impaired loans2 Under IAS 39, Retail Banking non-performing loans excluded those impaired loans classified as performing

157


28. Dealings in Standard Chartered PLC listed securities

This is also disclosed as part of Note 21 Share capital, other equity and reserves

Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities ofthe Company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchasedand held by the trusts are set out below.

Number of shares

1995 Trust 2004 Trust Total

30.06.18 31.12.17 30.06.17 30.06.18 31.12.17 30.06.17 30.06.18 31.12.17 30.06.17

Shares purchased duringthe year – – – – – – – – –

Market price of sharespurchased ($million) – – – – – – – – –

Shares held at the end ofthe year 1,336,879 3,769,011 3,769,011 16,755 18,004 34,262 1,353,634 3,787,015 3,803,273

Maximum number of sharesheld during the year 3,787,015 3,803,273 6,182,467

158

Standard Chartered PLC – Supplementary information

Supplementary financial information

Analysis of underlying performance by key country

The following tables provide information for key countries in which the Group operates. The numbers are prepared ona management view. Refer to note 2 for details.


Hong Kong$million Korea $million China $million

Singapore$million India $million

UAE$million

UK$million

US$million

Operating income 1,849 534 422 845 482 357 441 333Operating expenses (961) (404) (333) (512) (344) (233) (330) (321)

Operating profit before impairment lossesand taxation 888 130 89 333 138 124 111 12Credit impairment (15) (3) (9) (56) (29) (56) (45) (29)Other impairment (45) 5 – (10) (2) – 24 –Profit from associates and joint ventures – – 156 – – – – –

Underlying profit/(loss) before taxation 828 132 236 267 107 68 90 (17)

Total assets employed 153,021 52,536 31,639 83,211 27,370 18,477 140,227 52,578Of which: loans and advancesto customers 73,390 33,289 13,959 46,022 15,958 11,100 37,828 11,173

Total liabilities employed 135,252 46,942 28,693 82,305 18,049 14,373 154,925 45,610Of which: customer accounts 112,948 38,029 21,492 59,619 14,397 11,890 94,960 18,190


Hong Kong$million

Korea$million

China$million

Singapore$million

India$million

UAE$million

UK$million

US$million

Operating income 1,714 464 366 686 447 356 347 333Operating expenses (966) (411) (341) (535) (353) (268) (327) (316)

Operating profit before impairmentlosses and taxation 748 53 25 151 94 88 20 17Credit impairment 3 (58) (9) (117) (108) (61) (49) 4Other impairment (27) – – – – – (14) (2)Profit from associates and joint ventures – – 106 – – – – –Underlying profit/(loss) before taxation 724 (5) 122 34 (14) 27 (43) 19Total assets employed 140,431 51,822 33,243 86,431 26,315 20,268 119,272 45,338

Of which: loans and advancesto customers 67,292 34,891 12,899 45,495 16,515 11,328 34,694 10,092



Hong Kong$million

Korea$million

China$million

Singapore$million

India$million

UAE$million

UK$million

US$million

Operating income 1,670 503 341 733 561 377 400 342Operating expenses (906) (366) (311) (481) (305) (256) (285) (325)Operating profit before impairmentlosses and taxation 764 137 30 252 256 121 115 17Credit impairment (51) 5 (8) (101) (143) (33) (1) (61)Other impairment (51) (3) – – (3) – – –Profit from associates and joint ventures – – 123 – – – – –

Underlying profit/(loss) before taxation 662 139 145 151 110 88 114 (44)

Total assets employed 140,865 45,754 28,977 85,902 27,835 19,906 113,672 42,455Of which: loans and advancesto customers 65,950 31,186 11,964 43,071 15,740 11,076 29,527 9,829


159


Convenience translation of selected financial statements into Indian Rupees

In compliance with regulation 70 read with schedule IV part B of the Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) regulations, 2015, as amended, the Consolidated financial statements arepresented in Indian rupees (INR) using a US dollar/Indian rupee exchange rate of 68.5753 as at 30 June 2018 aspublished by the Reserve Bank of India. Amounts have been translated using the said exchange rate including totalsand sub-totals and any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

Condensed consolidated interim income statement (translated to INR)



Rs. million


Rs. million


Rs. million

Interest income 564,169 524,601 465,283

Interest expense (265,112) (235,556) (193,314)

Net interest income 299,057 289,045 271,971

Fees and commission income 144,968 134,476 135,848Fees and commission expense (16,801) (12,481) (17,007)

Net fee and commission income 128,167 121,995 118,841Net trading income 66,244 37,991 66,724Other operating income 29,556 44,985 37,648Non-interest income

Operating income 523,024 494,016 495,182

Staff costs (245,362) (239,671) (223,761)Premises costs (25,579) (29,967) (26,470)General administrative expenses (55,409) (80,302) (57,329)Depreciation and amortisation (29,213) (30,447) (26,401)

Operating expenses (355,563) (380,387) (333,961)

Operating profit before impairment losses and taxation 167,461 113,629 161,221Credit impairment (14,675) (48,483) (44,917)Other impairment

Goodwill – (21,944) –Other (3,429) (5,897) (6,378)

Profit from associates and joint ventures 11,521 8,023 10,355

Profit before taxation 160,878 45,328 120,281Taxation (51,638) (41,077) (37,579)

Profit for the period 109,240 4,251 82,702

Profit attributable to:Non-controlling interests 2,263 2,674 686Parent company shareholders 106,977 1,577 82,016

Profit for the period 109,240 4,251 82,702

Rupees Rupees Rupees

Earnings per share:Basic earnings/(loss) per ordinary share 27.9 (4.1) 20.2Diluted earnings/(loss) per ordinary share 27.6 (4.1) 20.0

160


Condensed consolidated interim statement of comprehensive income (translated to INR)



Rs. million


Rs. million


Rs. million

Profit for the period 109,240 4,251 82,702Other comprehensive income/(loss)

Items that will not be reclassified to income statement: 17,349 7,063 (23,384)

Own credit gains/(losses) on financial liabilities designated at fair value through profit or loss 9,326 4,183 (21,258)Equity instruments at fair value through other comprehensive income 1,303 – –Actuarial gains/(losses) on retirement benefit obligations 7,200 4,183 (1,989)Taxation relating to components of other comprehensive income (480) (1,303) (137)

Items that may be reclassified subsequently to income statement: (56,644) 36,276 68,781Exchange differences on translation of foreign operations:

Net (losses)/gains taken to equity (69,124) 51,089 61,169Net gains/(losses) on net investment hedges 14,812 (12,138) (7,612)

Share of other comprehensive income/(loss) from associates and joint ventures 1,097 960 (1,029)Debt instruments at fair value through other comprehensive income/Available for sale investments:

Net valuation (losses)/gains taken to equity (8,161) 3,703 21,601Reclassified to income statement 892 (8,983) (6,995)Net impact of expected credit losses (549) – –

Cash flow hedges:Net gains taken to equity 3,360 206 2,194Reclassified to income statement 343 754 –

Taxation relating to components of other comprehensive income 686 686 (549)

Other comprehensive (loss)/income for the period, net of taxation (39,295) 43,340 45,397

Total comprehensive income for the period 69,945 47,590 128,099

Total comprehensive income attributable to:Non-controlling interests 1,714 2,537 892Parent company shareholders 68,231 45,053 127,207

69,945 47,590 128,099

161


Condensed consolidated interim balance sheet (translated to INR)

As at 30 June 2018

30.06.18Rs. million

31.12.17Rs. million

AssetsCash and balances at central banks 3,991,974 4,036,616Financial assets held at fair value through profit or loss 5,477,041 1,890,210Derivative financial instruments 3,550,829 3,225,165Loans and advances to banks 3,812,992 3,942,668Loans and advances to customers 17,493,559 17,055,157Reverse repurchase agreements and other similar secured lending 876,461 3,721,924Investment securities 8,440,316 8,025,024Other assets 2,679,100 2,296,587Current tax assets 25,099 33,670Prepayments and accrued income 165,815 158,203Interests in associates and joint ventures 160,809 158,203Goodwill and intangible assets 341,094 343,768Property, plant and equipment 502,383 494,496Deferred tax assets 88,462 80,713Assets classified as held for sale 45,260 37,374

Total assets 47,651,193 45,499,780

LiabilitiesDeposits by banks 2,113,216 2,122,063Customer accounts 26,203,102 25,407,766Repurchase agreements and other similar secured borrowing 402,057 2,728,131Financial liabilities held at fair value through profit or loss 4,339,034 1,140,613Derivative financial instruments 3,631,885 3,298,541Debt securities in issue 3,167,905 3,180,454Other liabilities 2,780,317 2,417,759Current tax liabilities 42,654 25,784Accruals and deferred income 325,870 376,684Subordinated liabilities and other borrowed funds 1,031,853 1,177,849Deferred tax liabilities 31,202 27,704Provisions for liabilities and charges 27,430 12,549Retirement benefit obligations 23,864 31,202Total liabilities 44,120,388 41,947,100

EquityShare capital and share premium account 486,953 486,679Other reserves 822,149 875,501Retained earnings 1,858,802 1,826,915Total parent company shareholders’ equity 3,167,905 3,189,094Other equity instruments 340,202 340,202Total equity excluding non-controlling interests 3,508,107 3,529,296Non-controlling interests 22,698 23,384Total equity 3,530,805 3,552,681

Total equity and liabilities 47,651,193 45,499,780

162


Condensed consolidated interim statement of changes in equity (translated to INR)

For the year ended 30 June 2018

Sharecapital

and sharepremiumaccount

Rs. million

Capitaland

mergerreserves1

Rs. million

Owncredit

adjust-ment

reserveRs. million

Available-for-salereserve

Rs. million

Fair valuethrough

othercompre-hensiveincome

reserve –debt

Rs. million

Fair valuethrough


reserve –equity

Rs. million

Cash flowhedge

reserveRs. million

Translationreserve

Rs. million

Retainedearnings

Rs. million

Parentcompany

share-holders’

equityRs. million

Otherequityinstru-ments

Rs. million

Non-controlling

interestsRs. million

TotalRs. million

As at 31 December2017 486,679 1,174,626 3,703 5,692 – – (3,086) (305,434) 1,826,915 3,189,094 340,202 23,384 3,552,681

IFRS 9Reclassifications2 – – – (5,692) (8,983) 3,086 – – 11,589 – – – –

IFRS 9Re-measurements2 – – – – – 274 – – 2,126 2,400 – – 2,400

Expected creditloss, net – – – – 4,457 – – – (73,650)3 (69,192) – (549) (69,741)

Tax impact – – – – (754) 343 – – 12,275 11,864 – – 11,864

Impact of IFRS 9on share of jointventures andassociates, net oftax – – – – – (69) – – (3,497) (3,566) – – (3,566)

IFRS9 Transitionadjustments – – – (5,692) (5,280) 3,634 – – (51,157) (58,495) – (549) (59,043)

As at 1 January2018 486,679 1,174,626 3,703 – (5,280) 3,634 (3,086) (305,434) 1,775,757 3,130,600 340,202 22,836 3,493,637

Profit for the period – – – – – – – – 106,977 106,977 – 2,263 109,240

Othercomprehensiveincome/(loss) – – 9,052 – (7,063) 2,537 3,154 (53,694) 7,2694 (38,745) – (549) (39,294)

Distributions – – – – – – – – – – – (1,852) (1,852)Shares issued, netof expenses 274 – – – – – – – – 274 – – 274

Net own sharesadjustment – – – – – – – – 480 480 – – 480

Share optionexpense, net oftaxation – – – – – – – – 6,652 6,652 – – 6,652

Dividends net ofscrip5 – – – – – – – – (38,676) (38,676) – – (38,676)

Other movements – – – – – – – – 343 343 – – 343

As at 30 June 2018 486,953 1,174,626 12,755 – (12,344) 6,172 69 (359,129) 1,858,802 3,167,905 340,202 22,698 3,530,805

1 Includes capital reserve of Rs. 343 million, capital redemption reserve of Rs. 891 million and merger reserve of Rs. 1,173,392 million2 As per Note 27 Transition to IFRS 9 Financial Instruments3 The Group’s initial estimate of credit impairment on adoption of IFRS 9 was Rs. 460,826 million. Following refinement of the Group’s expected loss models, the estimate of the

opening credit impairment has been revised down by Rs. 15,224 million to Rs. 445,602 million, and the net expected credit loss of Rs. (88,874) million adjusted against retainedearnings has similarly decreased by Rs. 15,224 million

4 Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures Rs. 7,269 million (Rs. 6,583 million for the six months ended 31 December 2017 andRs. (3,154) million for the six months ended 30 June 2017)

5 Comprises dividends paid net of scrip Rs. 23,796 million (2017: Rs. nil) and dividends on preferences shares classified as equity and Additional Tier 1 securities Rs. 14,881 million(Rs. 15,087 million for the six months ended 31 December 2017 and Rs. 15,429 million for the six months ended 30 June 2017)

163


Sharecapital

and sharepremiumaccount

Rs. million

Capital andmerger

reserves1

Rs. million

Owncredit

adjust-ment

reserveRs. million

Available-for-salereserve

Rs. million

Fair valuethrough


reserve –debt

Rs. million

Fair valuethrough


reserve –equity

Rs. million

Cash flowhedge

reserveRs. million

Translationreserve

Rs. million

Retainedearnings

Rs. million

Parentcompany

share-holders’

equityRs. million

Otherequityinstru-ments

Rs. million

Non-controlling

interestsRs. million

TotalRs. million

At 1 January 2017 486,267 1,174,626 19,818 (274) – – (5,829) (398,080) 1,766,020 3,042,549 272,175 22,013 3,336,737

Profit for the period – – – – – – – – 82,016 82,016 – 686 82,702

Othercomprehensive(loss)/income – – (20,298) 13,166 – – 1,920 53,557 (3,154)2 45,191 – 206 45,397

Distributions – – – – – – – – – – – (3,566) (3,566)

Shares issued, netof expenses 274 – – – – – – – – 274 – – 274

Other equityinstruments issued,net of expenses – – – – – – – – – – 68,027 – 68,027

Net own sharesadjustment – – – – – – – – 549 549 – – 549

Share optionexpense, net oftaxation – – – – – – – – 4,663 4,663 – – 4,663

Dividends3 – – – – – – – – (15,429) (15,429) – – (15,429)

Other movements4 – – – – – – – – 1,166 1,166 – 1,646 2,812

At 30 June 2017 486,542 1,174,626 (480) 12,892 – – (3,909) (344,522) 1,835,829 3,160,978 340,202 20,984 3,522,165

Profit for the period – – – – – – – – 1,577 1,577 – 2,674 4,252Othercomprehensiveincome/(loss) – – 4,183 (7,200) – – 823 39,088 6,5832 43,477 – (137) 43,340Distributions – – – – – – – – – – – 69 69Shares issued, netof expenses 137 – – – – – – – – 137 – – 137Net own sharesadjustment – – – – – – – – 137 137 – – 137Share optionexpense, net oftaxation – – – – – – – – 3,909 3,909 – – 3,909Dividends3 – – – – – – – – (15,087) (15,087) – – (15,087)Other movements5 – – – – – – – – (6,035) (6,035) – (206) (6,240)

As at 31 December2017 486,679

1,174,626 3,703 5,692 – – (3,086) (305,434) 1,826,915 3,189,094 340,202 23,384 3,552,681

1 Includes capital reserve of Rs. 343 million, capital redemption reserve of Rs. 891 million and merger reserve of Rs. 1,173,392 million2 Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures of Rs. 6,583 million for the six months ended 31 December 2017 and Rs. (3,154) million

for the six months ended 30 June 20173 Comprises dividends on preference shares classified as equity and Additional Tier 1 securities Rs. 15,087 million for the six months ended 31 December 2017 and Rs. 15,429 million

for the six months ended 30 June 20174 Mainly due to additional share capital issued including the premium by Nepal to its non-controlling interests of Rs. 2,194 million and Rs. 617 million with respect to an acquisition5 Mainly due to other equity adjustments of Rs. 6,172 million

164


Condensed consolidated interim cash flow statement (translated to INR)



Rs. million


Rs. million


Rs. million

Cash flows from operating activities:Profit before taxation 160,878 45,328 120,281Adjustments for non-cash items and other adjustments included within income statement 81,125 151,346 70,907

Change in operating assets (1,977,917) (457,672) (476,667)Change in operating liabilities 2,742,601 233,430 165,609Contributions to defined benefit schemes (2,606) (6,378) (3,429)UK and overseas taxes paid (22,630) (31,270) (31,476)

Net cash from /(used in) operating activities 981,451 (65,215) (154,774)

Cash flows from investing activities:Purchase of property, plant and equipment (4,389) (7,406) (3,909)Disposal of property, plant and equipment 206 137 1,852Acquisition of investment in subsidiaries, associates and joint ventures, net of cash acquired – – (3,017)Dividends received from subsidiaries, associates and joint ventures 206 69 69Disposal of subsidiaries – (1,646) 1,646Purchase of investment securities (9,868,191) (9,041,928) (9,143,282)Disposal and maturity of investment securities 9,247,173 8,658,935 9,260,889

Net cash (used in)/from investing activities (624,995) (391,839) 114,246

Cash flows from financing activities:Issue of ordinary and preference share capital, net of expenses 274 137 274Exercise of share options 480 137 549Issue of Additional Tier 1 capital, net of expenses – – 68,027Gross proceeds from issue of subordinated liabilities 34,288 – –Interest paid on subordinated liabilities (16,595) (33,328) (17,624)Repayment of subordinated liabilities (153,746) (204,629) –Proceeds from issue of senior debts 131,733 139,276 17,898Repayment of senior debts (168,970) (204,149) (81,262)Interest paid on senior debts (15,224) (37,579) (23,864)(Repayment to)/investment from non-controlling interests – (206) 1,646Dividends paid to non-controlling interests and preference shareholders (16,664) (15,018) (18,995)Dividends paid to ordinary shareholders (23,864) – –

Net cash used in financing activities (228,288) (355,357) (53,352)Net increase/(decrease) in cash and cash equivalents 128,167 (812,412) (93,880)

Cash and cash equivalents at beginning of the period 5,981,892 6,761,250 6,650,227

Effect of exchange rate movements on cash and cash equivalents (53,832) 33,053 204,903

Cash and cash equivalents at end of the period 6,056,227 5,981,892 6,761,250

Summary of significant differences between Indian GAAP and IFRS

The condensed consolidated interim financial statements of the Group for the six month ended 30 June 2018 withcomparatives as at 31 December 2017 and 30 June 2017 are prepared in accordance with International FinancialReporting Standards (IFRS) and IFRS Interpretations Committee interpretations as adopted by the European Union.

IFRS differs in certain significant respects from Indian Generally Accepted Accounting Principles (GAAP). Suchdifferences involve methods for measuring the amounts shown in the financial statements of the Group, as well asadditional disclosures required by Indian GAAP.

165

Standard Chartered PLC – Supplementary informationSet out below are descriptions of certain accounting differences between IFRS and Indian GAAP that could have asignificant effect on profit or loss attributable to parent company shareholders for the period ended 30 June 2018 and31 December 2017 and 30 June 2017 and total parent company shareholders’ equity as at the same dates. Thissection does not provide a comprehensive analysis of such differences. In particular, this description considers onlythose Indian GAAP pronouncements for which adoption or application is required in financial statements for yearsended on or prior to 30 June 2018. The Group has not quantified the effect of differences between IFRS and IndianGAAP, nor prepared consolidated financial statements under Indian GAAP, nor undertaken a reconciliation of IFRSand Indian GAAP financial statements. Had the Group undertaken any such quantification or preparation orreconciliation, other potentially significant accounting and disclosure differences may have come to its attention whichare not identified below. Accordingly, the Group does not provide any assurance that the differences identified belowrepresent all the principal differences between IFRS and Indian GAAP relating to the Group. Furthermore, no attempthas been made to identify future differences between IFRS and Indian GAAP. In addition no attempt has been madeto identify all differences between IFRS and Indian GAAP that may affect the financial statements as a result oftransaction or events that may occur in the future.

In making an investment decision, potential investors should consult their own professional advisors for anunderstanding of the differences between IFRS and Indian GAAP and how those differences may have affected thefinancial results of the Group. The summary does not purport to be complete and is subject to and qualified in itsentirety by reference to the pronouncements of the International Accounting Standards Board (IASB), together withthe pronouncements of the Indian accounting profession.

Changes in accounting policy

IFRS (IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)Changes in accounting policy are applied retrospectively. Comparatives are restated and the effect of period(s) notpresented is adjusted against opening retained earnings of the earliest year presented. Policy changes made on theadoption of a new standard are made in accordance with that standard’s transitional provisions.

Indian GAAP (AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies)The cumulative amount of the change is included in the income statement for the period in which the change is madeexcept as specified in certain standards (transitional provision) where the change during the transition period resultingfrom adoption of the standard has to be adjusted against opening retained earnings and the impact disclosed.

Where a change in accounting policy has a material effect in the current period, the amount by which any item in thefinancial statements is affected by such change should also be disclosed to the extent ascertainable. Where such anamount is not ascertainable, this fact should be indicated.

Functional and presentation currency

IFRS (IAS 21 The Effects of Changes in Foreign Exchange Rates)An entity may present its financial statements in any currency (or currencies). If the presentation currency differs fromthe entity’s functional currency, it translates its results and financial position into the presentation currency.

Monetary assets and liabilities are translated at the closing rate at the date of that statement of financial position.Income statement items are translated at the exchange rate at the date of transaction or at average rates. Thefunctional currency is the currency of the primary economic environment in which an entity operates. The functionaland presentation currency of the Group is US dollars.

Indian GAAP (AS 11 The Effects of Changes in Foreign Exchange Rates)There is no concept of functional or presentation currency. Entities in India have to prepare their financial statementsin Indian rupees.

A foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to theforeign currency amount, the exchange rate between the reporting currency and the foreign currency at the date ofthe transaction.

At each balance sheet date:

• Foreign currency monetary items should be reported using the closing rate

• Non-monetary items which are carried in terms of historical cost denominated in a foreign currency should bereported using the exchange rate at the date of the transaction

Non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency shouldbe reported using the exchange rates that existed when the values were determined

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Consolidation

IFRS (IFRS 10 Consolidated Financial Statements)Entities are consolidated when the Group controls an entity. The Group controls an entity when it is exposed to, or hasrights to direct relevant activities, or has right to variable returns from its involvement with the entity and has the abilityto affect those returns through its power over the investee. This also includes entities where control is not derivedthrough voting rights such as structured entities.

Indian GAAP (AS 21 Consolidated Financial Statements)Guidance is based on the power through the ability to govern the financial and operating policies of an entity so as toobtain benefits while not taking into consideration potential voting rights.

No specific guidance is given by Indian GAAP on consolidation of structured entities.

Business combinations

IFRS (IFRS 3 Business Combinations)All business combinations are treated as acquisitions. Assets, liabilities and contingent liabilities acquired aremeasured at their fair values with the excess over this fair value when compared with the acquisition cost recognisedas goodwill.

For acquisitions occurring on or after 1 January 2004, IFRS 3 requires that, when assessing the value of the assets ofan acquired entity, certain identifiable intangible assets must be recognised and; if considered to have a finite life,amortised through the income statement over an appropriate period.

Adjustments to provisional fair values are permitted provided those adjustments are made within 12 months from thedate of acquisition, with a corresponding adjustment to goodwill. After re-assessment of respective fair values of netassets acquired, any excess of acquirer’s interest in the net fair values of acquirer’s identifiable assets is recognisedimmediately in the income statement.

The Group’s policy for non-controlling interests is generally not to recognise non-controlling interests at their fair value,but to recognise them based on their proportionate share of the fair value of the identifiable net assets acquired.

Indian GAAP (AS 14 Accounting for Amalgamations)Treatment of a business combination depends on whether the acquired entity is held as a subsidiary, whether it is anamalgamation or whether it is an acquisition of a business. For an entity acquired and held as a subsidiary, thebusiness combination is accounted for as an acquisition. The assets and liabilities acquired are incorporated at theirexisting carrying amounts.

For an amalgamation of an entity, either pooling of interests or acquisition accounting may be used. The assets andliabilities amalgamated are incorporated at their existing carrying amounts or, alternatively, if acquisition accounting isadopted, the consideration can be allocated to individual identifiable assets (which may include intangible assets) andliabilities on the basis of their fair values.

Adjustments to the value of acquired or amalgamated balances are not permitted after initial recognition. Any excessof acquirer’s interest in the net fair values of acquirer’s identifiable assets is recognised as capital reserve, which isneither amortised nor available for distribution to shareholders. However, in case of an amalgamation accountedunder the purchase method, the fair value of intangible assets with no active market is reduced to the extent of capitalreserve, if any, arising on the amalgamation. Minority interests arising on the acquisition of a subsidiary are recognisedat their share of the historical book value.

Goodwill

IFRS (IFRS 3 Business Combinations and IAS 38 Intangible Assets)IFRS 3 requires that goodwill arising on all acquisitions by the Group and associated undertakings is capitalised butnot amortised and is subject to an annual review for impairment. Goodwill is tested annually for impairment. Anyimpairment losses recognised may not be reversed in subsequent accounting periods.

Indian GAAP (AS 14 Accounting for Amalgamations and AS 26 Intangible Assets)Goodwill arising on amalgamations is capitalised and amortised over useful life not exceeding five years, unless alonger period can be justified. For goodwill arising on acquisition of a subsidiary or a business, there is no specificguidance. In practice, there is either no amortisation or amortisation not exceeding 10 years. Goodwill is reviewed forimpairment whenever an indicator of impairment exists. Impairment losses recognised may be reversed underexceptional circumstances only in subsequent accounting periods through the income statement.

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Acquired and internally generated intangible assets

IFRS (IAS 38 Intangible Assets)Intangible assets are recognised if they are deemed separable and arise from contractual or other legal rights. Assetswith a finite useful life are amortised on a systematic basis over their useful life. An asset with an indefinite useful lifeshould be tested for impairment annually.

Indian GAAP (AS 26 Intangible Assets)Intangible assets are capitalised if specific criteria are met and are amortised over their useful life, generally notexceeding 10 years. The recoverable amount of an intangible asset that is not available for use or is being amortisedover a period exceeding 10 years should be reviewed at least at each financial year end even if there is no indicationthat the asset is impaired.

Property, plant and equipment

IFRS (IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs)The Group’s policy is to hold all property, plant, aviation, shipping and equipment fixed assets at cost lessdepreciation and consequently tangible fixed assets are not subject to revaluation. Fixed assets are, however, subjectto impairment testing.

Foreign exchange gains or losses relating to the procurement of property, plant and equipment can be capitalised aspart of the asset. Depreciation is recorded over the asset’s estimated useful life. Borrowing costs that are directlyattributable to the acquisition or construction of an asset must be capitalised as part of that asset.

Indian GAAP (AS 10 Fixed Assets, AS 16 Borrowing Cost and AS 6 Depreciation Accounting)Fixed assets are recorded at historical costs or revalued amounts. Relevant borrowing costs are capitalised if certaincriteria in AS 16 are met. Depreciation is recorded over the asset’s useful life. Schedule II (Part C) of the CompaniesAct 2013 and Banking Regulations prescribe minimum rates of depreciation and these are typically used as the basisfor determining useful life.

Recognition and measurement of financial instruments

IFRS 9 Financial InstrumentsClassification and measurement

Accounting policyThe Group classifies its financial assets into the following measurement categories: amortised cost; fair value throughother comprehensive income; and fair value through profit or loss. Financial liabilities are classified as either amortisedcost, or held at fair value through profit or loss. Management determines the classification of its financial assets andliabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.

Financial assets held at amortised cost and fair value through other comprehensive incomeDebt instruments held at amortised cost or held at fair value through comprehensive income (FVOCI) have contractualterms that give rise to cash flows that are solely payments of principal and interest (SPPI characteristics). Principal isthe fair value of the financial asset at initial recognition but this may change over the life of the instrument as amountsare repaid. Interest consists of consideration for the time value of money, for the credit risk associated with theprincipal amount outstanding during a particular period and for other basic lending risks and costs, as well as a profitmargin.

Whether financial assets are held at amortised cost or at FVOCI depends on the objectives of the business modelsunder which the assets are held. A business model refers to how the Group manages financial assets to generatecash flows.

The Group makes an assessment of the objective of a business model in which an asset is held at the individualproduct business line, and where applicable within business lines depending on the way the business is managed andinformation is provided to management.

Financial assets that have SPPI characteristics and which are held within a business model whose objective is to holdfinancial assets to collect contractual cash flows (‘hold to collect’) are recorded at amortised cost.

Conversely, financial assets that have SPPI characteristics but are held within a business model whose objective isachieved by both collecting contractual cash flows and selling financial assets (‘hold to collect and sell’) are classifiedas FVOCI.

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Equity instruments designated as FVOCINon-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designatedat initial recognition at FVOCI on an instrument-by-instrument basis. Gains and losses arising from changes in the fairvalue of these instruments, including foreign exchange gains and losses, are recognised directly in equity and arenever reclassified to profit or loss, even on derecognition.

Financial assets and liabilities held at fair value through profit or lossFinancial assets that are not held at amortised cost or which are not held at fair value through other comprehensiveincome are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or lossare either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit orloss at initial recognition.

Mandatorily classified at fair value through profit or lossFinancial assets and liabilities that are mandatorily held at fair value through profit or loss include:

• Financial assets and liabilities held for trading, which are those acquired principally for the purpose of sellingin the short term

• Hybrid financial assets that contain one or more embedded derivatives

• Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPIcharacteristics

• Equity instruments that have not been designated as held at FVOCI

• Financial liabilities that constitute contingent consideration in a business combination

Designated at fair value through profit or lossFinancial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates orsignificantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assetsor liabilities on a different basis (‘accounting mismatch’).

Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair valuebasis or have a bifurcately embedded derivative where the Group is not able to separately value the embeddedderivative component.

Financial liabilities held at amortised costFinancial liabilities that are not financial guarantees or loan commitments and that are not classified as financialliabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

Financial guarantee contracts and loan commitmentsFinancial guarantee contracts and loan commitments issued at below market interest rates are initially recognised asliabilities at fair value and subsequently at the higher of the expected credit loss provision,

and the amount initially recognised less the cumulative amount of income recognised in accordance with theprinciples of IFRS 15 Revenue from Contracts with Customers.

Fair value of financial assets and liabilitiesFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date in the principal market for the asset or liability, or in theabsence of a principal market, the most advantageous market to which the Group has access at that date. The fairvalue of a liability includes the risk that the bank will not be able to honour its obligations.

Initial recognitionPurchases and sales of financial assets and liabilities held at fair value through profit or loss, and debt securitiesclassified as financial assets held at FVOCI are initially recognised on the trade-date (the date on which the Groupcommits to purchase or sell the asset). Loans and advances and other financial assets held at amortised cost arerecognised on settlement date (the date on which cash is advanced to the borrowers).

All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directlyattributable transaction costs for financial assets that are not subsequently measured at fair value through profit orloss.

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Subsequent measurementFinancial assets and financial liabilities held at amortised costFinancial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using theeffective interest method. Foreign exchange gains and losses are recognised in the income statement.

Financial assets held at FVOCIDebt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising fromchanges in fair value (including any related foreign exchange gains or losses) recognised in other comprehensiveincome and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortisedcost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and areaccumulated in a separate component of equity.

Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and lossesarising from changes in fair value (including any related foreign exchange gains or losses) recognised in othercomprehensive income and accumulated in a separate component of equity.

Financial assets and liabilities mandatorily held at fair value through profit or loss and financial assets designated at fairvalue through profit or loss are subsequently carried at fair value, with gains and losses arising from changes in fairvalue recorded in the net trading income line in the income statement unless the instrument is part of a cash flowhedging relationship. Contractual interest income on financial assets held at fair value through profit or loss isrecognised as interest income in a separate line in the income statement.

Financial liabilities designated at fair value through profit or lossFinancial liabilities designated at fair value through profit or loss are held at fair value, with changes in fair valuerecognised in the net trading income line in the profit or loss, other than that attributable to changes in credit risk. Fairvalue changes attributable to credit risk are recognised in other comprehensive income and recorded in a separatecategory of reserves unless this is expected to create or enlarge an accounting mismatch, in which case the entirechange in fair value of the financial liability designated fair value through profit or loss is recognised in profit or loss.

Indian GAAP (AS 13 Investments)AS 13 requires investments to be categorised as follows:

• Current investments, which are those readily realisable and intended to be held for less than one year, arecarried at the lower of cost and fair value, with changes in fair value taken directly to profit or loss

• Long-term investments, which are those investments not classified as current, are carried at cost unless thereis a permanent diminution in value, in which case a provision for diminution is required to be made by theentity

For investments, the Reserve Bank of India (RBI) outlines similar classifications to IFRS, but the classification criteriaand measurement requirements differ from those set out in IFRS. Financial liabilities are usually carried at cost. Thereis no ability to designate instruments at fair value.

Derivatives

IFRS (IFRS 9/IAS 39 Financial Instruments: Recognition and Measurement)IFRS 9 requires that all derivatives be recognised on balance sheet at fair value. Changes in the fair value ofderivatives that are not hedges are reported in the income statement. Changes in the fair value of derivatives that aredesignated as hedges are either offset against the change in fair value of the hedged asset or liability throughearnings, or recognised directly in equity until the hedged item is recognised in earnings, depending on the nature ofthe hedge. The ineffective portion of the hedge’s change in fair value is immediately recognised in earnings. Aderivative may only be classified as a hedge if an entity meets stringent qualifying criteria in respect of documentationand hedge effectiveness.

The Group continues to apply the hedge accounting requirements of IAS 39 rather than the requirements of IFRS 9.

Indian GAAPForeign exchange contracts held for trading or speculative purposes are carried at fair value, with gains and lossesrecognised in the income statement. In the absence of specific guidance, equity options are carried at the lower ofcost or market value.

For banks, there are guidelines prescribed by RBI on measurement and accounting of interest rate swaps and forwardrate agreements entered into for hedging purposes.

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Impairment of financial assets

Under IFRS 9 the impairment of financial assets is as follows:

MeasurementExpected credit losses are computed as unbiased, probability-weighted amounts which are determined by evaluatinga range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportableinformation including that which is forward looking.

For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default(PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). For less material Retailloan portfolios, the Group has adopted simplified approaches based on historical roll rates or loss rates.

For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert creditjudgement. As a practical expedient, the Group may also measure credit impairment on the basis of an instrument’sfair value using an observable market price.

Cash shortfalls are discounted using the effective interest rate on the financial instrument as calculated at initialrecognition, or if the instrument has a variable interest rate, the current effective interest rate determined under thecontract.

Instruments Location of expected credit loss provisions

Financial assets held at amortised cost Loss provisions: netted against gross carrying value

Financial assets held at FVOCI – Debt instruments Other comprehensive income (FVOCI expected credit loss reserve)

Loan commitments Provisions for liabilities and charges

Financial guarantees Provisions for liabilities and charges

Recognition

12 months expected credit losses (Stage 1)Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent thelifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheetdate. Expected credit losses continue to be determined on this basis until there is either a significant increase in thecredit risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered toexhibit a significant increase in credit risk, expected credit losses will revert to being determined on a 12-month basis.

Significant increase in credit risk (Stage 2)If a financial asset experiences a significant increase in credit risk (SICR) since initial recognition, an expected creditloss provision is recognised for default events that may occur over the lifetime of the asset.

Significant increase in credit risk is assessed by comparing the risk of default of an exposure at the reporting date tothe risk of default at origination (after taking into account the passage of time). Significant does not mean statisticallysignificant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of defaultis significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends onthe type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired willalways be considered to have experienced a significant increase in credit risk. For less material portfolios where a lossrate or roll rate approach is applied to compute expected credit loss significant increase in credit risk is primarilybased on 30 days past due.

Credit impaired (or defaulted) exposures (Stage 3)Financial assets that are credit impaired (or in default) represent those that are at least 90 days past due in respect ofprincipal and/or interest. Financial assets are also considered to be credit impaired where the obligors are unlikely topay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cashflows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect ofseveral events may cause financial assets to become credit impaired.

Irrevocable lending commitments to a credit impaired obligor that have not yet been drawn down are also includedwithin the stage 3 credit impairment provision to the extent that the commitment cannot be withdrawn.

Loss provisions against credit impaired financial assets are determined based on an assessment of the recoverablecash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The lossprovisions held represent the difference between the present value of the cash flows expected to be recovered,discounted at the instrument’s original effective interest rate, and the gross carrying value of the instrument prior toany credit impairment.

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Indian GAAP (AS 13 Investments)Long-term investments are written down when there is a decline in fair value which is deemed to be other thantemporary.

Impairments may be reversed through the income statement in subsequent periods if the investment rises in value orthe reasons for the impairment no longer exist.

In accordance with RBI regulations, in respect of available-for-sale investments, impairments are required to bereversed through Investment Reserve Account (equity reserve) if the investment rises in value or the reasons forimpairment no longer exist.

For loans and advances, the RBI regulations stipulate minimum provision based on days past due. Additionally, RBIregulations require banks to hold provisions in respect of standard assets and for specific country risk exposures.

Derecognition of financial instruments – IFRS 9

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired orwhere the Group has transferred substantially all risks and rewards of ownership. If substantially all the risks andrewards have been neither retained nor transferred and the Group has retained control, the assets continue to berecognised to the extent of the Group’s continuing involvement.

Where financial assets have been modified, the modified terms are assessed on a qualitative and quantitative basis todetermine whether a fundamental change in the nature of the instrument has occurred, such as whether thederecognition of the pre-existing instrument and the recognition of a new instrument is appropriate.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amountallocated to the portion of the asset derecognised) and the sum of the consideration received (including any new assetobtained less any new liability assumed) and any cumulative gain or loss that had been recognised in othercomprehensive income is recognised in profit or loss except for equity instruments elected FVOCI (see above) andcumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensiveincome.

Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when theobligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However,where a financial liability has been modified, it is derecognised if the difference between the modified cash flows andthe original cash flows is more than 10 per cent.

If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liabilityand the consideration paid is included in Other income except for the cumulative fair value adjustments attributable tothe credit risk of a liability that are held in other comprehensive income which are never recycled to the profit or loss.

IFRS classification debt/equityThe substance of a financial instrument, rather than its legal form, governs its classification. A financial instrument isclassified as a liability where there is a contractual obligation to deliver either cash or another financial asset to theholder of that instrument, regardless of the manner in which the contractual obligation will be settled. Preferenceshares, which carry a mandatory coupon or are redeemable on a specific date or at the option of the shareholder areclassified as financial liabilities and are presented in other borrowed funds. The dividends on these preference sharesare recognised in the income statement as interest expense on an amortised cost basis using the effective interestmethod.

Indian GAAPClassification is based on the legal form rather than substance.

Provisions for liabilities and charges

IFRS (IAS 37 Provisions, Contingent Liabilities and Contingent Assets)The amount recognised as a provision is the best estimate at the balance sheet date of the expenditure required tosettle the obligation, discounted using a pre-tax market discount rate if the effect is material.

Indian GAAP (AS 29 Provisions, Contingents Liabilities and Contingent Assets)Provisions are recognised and measured on a similar basis to IFRS, except that there is no requirement fordiscounting the provision or liability.

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Pension obligations

IFRS (IAS 19 Employee Benefits)For defined contribution plans, contributions are charged to operating expenses. For funded defined benefit plans, theliability recognised in the balance sheet is the present value of the defined benefit obligation at the balance sheet dateless the fair value of plan assets. For unfunded defined benefit plans the liability recognised at the balance sheet dateis the present value of the defined benefit obligation. The defined benefit obligation is calculated annually byindependent actuaries using the projected unit method. The present value of the defined benefit obligation isdetermined by discounting the estimated future cash outflows using an interest rate equal to the yield on high-qualitycorporate bonds. Actuarial gains and losses that arise are recognised in shareholders’ equity and presented in thestatement of other comprehensive income in the period they arise. The net interest expense on the net defined liabilityfor the year is determined by applying the discount rate used to measure the defined benefit obligation at thebeginning of the annual period to the then net defined benefit liability, taking into account any changes in the netdefined benefit liability during the year as a result of contributions and benefit payment. Net interest expense and otherexpense related to defined benefit plans are recognised in the income statement.

Indian GAAP (AS 15 Employee Benefits)The discount rate to be used for determining defined benefit obligations is established by reference to market yields atthe balance sheet date on government bonds. The expected return on plan assets is based on market expectation forthe returns over the entire life of the related obligation. Actuarial gains or losses are recognised immediately in thestatement of income.

Share-based compensation

IFRS (IFRS 2 Share-based payments)IFRS 2 requires that all share-based payments are accounted for using a fair value method. The fair value of theemployee services received in exchange for the grant of the options is recognised as an expense. For equity-settledawards, the total amount to be expensed over the vesting period must be determined by reference to the fair value ofthe options granted (determined using an option pricing model), excluding the impact of any non-market vestingconditions (for example, profitability and growth targets). Non-market vesting conditions must be included inassumptions about the number of options that are expected to become exercisable. At each balance sheet date, theGroup revises its estimates of the number of options that are expected to become exercisable. It recognises theimpact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equityover the remaining vesting period. The proceeds received net of any directly attributable transaction costs are creditedto share capital (nominal value) and share premium when the options are exercised.

Cash-settled awards must be revalued at each balance sheet date on an intrinsic value basis (being the differencebetween the market price of the share at the measurement date and the exercise price) with any changes in fair valuecharged or credited to staff costs in the income statement.

Indian GAAPEntities may either follow the intrinsic value method or the fair value method for determining the costs of benefitsarising from share-based compensation plans. Although the fair value approach is recommended, entities may usethe intrinsic value method and provide fair value disclosures.

Deferred tax is not recognised as it is not considered to represent a timing difference.

Entities are also permitted the option of recognising the related compensation cost over the service period for theentire award (that is, over the service period of the last separately vesting portion of the award), provided that theamount of compensation cost recognised at any date at least equals the fair value of the vested portion of the awardat that date.

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Deferred taxation

IFRS (IAS 12 Income Taxes)Deferred tax is determined based on temporary differences, being the difference between the carrying amount andtax base of assets and liabilities, subject to certain exceptions.

Deferred tax assets are recognised if it is probable (more likely than not) that sufficient future taxable profits will beavailable to utilise to deferred tax assets.

Indian GAAP (AS 22 Accounting for Taxes on Income)Deferred tax is determined based on timing differences, being the difference between accounting income and taxableincome for a period that is capable of reversal in one or more subsequent periods.

Deferred tax assets are recognised where it is probable that future taxable profit will be available against which thetemporary differences can be utilised.

Interest income and expense

IFRS (IFRS 9)Interest income and expense is recognised in the income statement using the effective interest method. The effectiveinterest rate is the rate that discounts estimated future cash payments or receipts through the expected life of thefinancial instrument. When calculating the effective interest rate, the Group estimates cash flows considering allcontractual terms of the financial instrument but does not consider future credit losses. The calculation includes allfees and points paid or received between parties to the contract that are an integral part of the effective interest rate,transaction costs and all other premiums or discounts.

Indian GAAP (IAS 9 Revenue Recognition)As per IAS 9, Interest is recognised on a time proportion basis taking into account the amount outstanding and therate applicable. In the absence of a specific effective interest rate requirement, premiums and discounts are usuallyamortised on a straight-line basis over the term of the instrument.

Dividends

IFRS (IAS 10 Events After The Reporting Date)Dividends to holders of equity instruments, when proposed or declared after the balance sheet date, should not berecognised as a liability on the balance sheet date. A company, however, is required to disclose the amount ofdividends that were proposed or declared after the balance sheet date but before the financial statements wereauthorised for issue.

Indian GAAPAccounting and disclosure of dividends is similar to IFRS with effect from 1 April 2016.

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Standard Chartered PLC – Supplementary informationOther supplementary information

A. Our Fair Pay Charter

The Group’s Fair Pay Charter sets out the principles we use to determine and deliver pay for all employees globally.Our Fair Pay Charter is set out in the Group’s 2017 Annual Report and Accounts.

B. Group Share Plans

2011 Standard Chartered Share Plan (the ‘2011 Plan’)The 2011 Plan was approved by shareholders in May 2011 and is the Group’s main share plan. Since approval, it hasbeen used to deliver various types of share awards:

• Long Term Incentive Plan (‘LTIP’) awards: granted with vesting subject to performance measures.Performance measures attached to awards granted previously include: total shareholder return (‘TSR’); returnon equity (‘RoE’) with a common equity tier 1 (‘CET1’) underpin; strategic measures; earnings per share(‘EPS’) growth; and return on risk-weighted assets (‘RoRWA’). Each measure is assessed independently overa three-year period. Awards granted from 2016 have an individual conduct gateway requirement that resultsin the award lapsing if not met

• Deferred awards are used to deliver the deferred portion of variable remuneration, in line with both marketpractice and regulatory requirements. These awards vest in instalments on anniversaries of the award datespecified at the time of grant. Deferred awards are not subject to any plan limit. This enables the Group tomeet regulatory requirements relating to deferral levels, and is in line with market practice

• Restricted share awards, made outside of the annual performance process as replacement buy-out awardsto new joiners who forfeit awards on leaving their previous employers, vest in instalments on the anniversariesof the award date specified at the time of grant. This enables the Group to meet regulatory requirementsrelating to buy-outs, and is in line with market practice. In line with similar plans operated by our competitors,restricted share awards are not subject to an annual limit and do not have any performance measures

• Underpin shares are subject to a combination of two performance measures: EPS growth and RoRWA. Theweighting between the two elements is split equally, one-half of the award depending on each measure,assessed independently. These awards vest after three or five years. Underpin shares formed part of thevariable remuneration awarded to executive directors and senior management in respect of 2014performance

Under the 2011 Plan, no grant price is payable to receive an award. The remaining life of the 2011 Plan during whichnew awards can be made is three years.

2001 Performance Share Plan (‘2001 PSP’) – now closed to new grantsThe Group’s previous plan for delivering performance shares was the 2001 PSP and there remain outstanding vestedawards. Under the 2001 PSP half the award was dependent upon TSR performance and the balance was subject to atarget of defined EPS growth. Both measures used the same three-year period and were assessed independently.

2006 Restricted Share Scheme (‘2006 RSS’) / 2007 Supplementary Restricted Share Scheme (‘2007 SRSS’)The Group’s previous plans for delivering restricted shares were the 2006 RSS and 2007 SRSS both now replaced bythe 2011 Plan. There are no outstanding vested awards under these plans. Awards were generally in the form of nilcost options and did not have any performance measures. Generally deferred restricted share awards vested equallyover three years and for non-deferred awards half vested two years after the date of grant and the balance after threeyears. No further awards will be granted under the 2006 RSS and 2007 SRSS.

All Employee Sharesave Plans

2013 Sharesave PlanThe 2013 Sharesave Plan was approved by shareholders in May 2013. Under the 2013 Sharesave Plan, employeesmay open a savings contract. Within a maturity period of six months after the third anniversary, employees maypurchase ordinary shares in the Company at a discount of up to 20 per cent on the share price at the date of invitation(this is known as the ‘option exercise price’). There are no performance measures attached to options granted underthe 2013 Sharesave Plan and no grant price is payable to receive an option. In some countries in which the Groupoperates, it is not possible to deliver shares through the 2013 Sharesave Plan, typically due to securities law andregulatory restrictions. In these countries, the Group offers an equivalent cash-based plan to its employees. Theremaining life of the 2013 Sharesave Plan is four years.

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2004 International Sharesave and the 2004 UK Sharesave plansThe Group’s previous all employee Sharesave plans were the 2004 International Sharesave and the 2004 UKSharesave plans, both replaced by the 2013 Sharesave Plan. There are no outstanding vested awards under theseplans. These plans are closed and no further awards will be granted under them.

Valuation of share awardsDetails of the valuation models used in determining the fair values of share awards granted under the Group’s shareplans are detailed in the Group’s 2017 Annual Report and Accounts.

Reconciliation of share award movements for the period to 30 June 2018

2011 Plan1

PSP1 RSS1 SRSS1 Sharesave

Weighted averageSharesave

exercise price(£)LTIP

Deferred/restricted

shares

Outstanding at 1 January2018 25,477,368 23,311,221 17,222 185,943 1,249 12,818,234 6.06Granted2 2,315,629 12,895,556 – – – – –Lapsed (411,393) (840,557) (553) (50,484) – (1,929,188) 8.29Exercised (14,502) (5,988,767) (4,525) (135,459) (1,249) (60,319) 5.52

Outstanding at 30 June2018 27,367,102 29,377,453 12,144 – – 10,828,727 5.66

Exercisable as at 30 June2018 49,891 4,319,615 12,144 – – 29,996 5.66

Range of exercise prices (£) – – – – – 5.30-9.38

Intrinsic value of vested butnot exercised options($million) 0.1 3.2 0.0 0.0 0.0 0.0

Weighted averagecontractual remaining life(years) 7.94 8.56 0.80 0.0 0.0 1.75

Weighted average shareprice for options exercisedduring the period (£) 7.65 7.68 7.79 7.84 7.85 7.59

1 Employees do not contribute towards the cost of these awards2 12,508,120 (DRSA/RSA) granted on 9 March 2018, 39,945 (notional dividend) granted on 11 March 2018, 63,350 (notional dividend) granted on 13 March 2018, 37,774 (notional

dividend) granted on 19 March 2018, 2,076,370 (LTIP) granted on 9 March 2018, 216,127 (notional dividend) granted on 11 March 2018, 22,317 (notional dividend) granted on13 March 2018, 815 (notional dividend) granted on 19 March 2018 and 246,367 (DRSA/RSA) granted on 18 June 2018

C. Group Chairman and independent non-executive directors’ interests in ordinary shares as at 30 June 20181,2

Sharesbeneficiallyheld as at

1 January 2018

Sharesbeneficially

held as at30 June 2018

ChairmanJ Viñals 8,500 8,500

Current independent non-executive directorsN Kheraj 2,571 2,571O P Bhatt 2,000 2,000Dr L Cheung 2,571 2,571Mr D P Conner 10,000 10,000Dr B E Grote 44,541 44,541Dr Han Seung-soo, KBE 3,474 3,509C M Hodgson 2,571 2,571G Huey Evans, OBE 2,571 2,597Dr N Okonjo-Iweala 2,000 2,020J M Whitbread 2,571 2,571

1 Independent non-executive directors are required to hold shares with a nominal value of $1,000. All the directors have met this requirement2 The beneficial interests of directors and their related parties in the ordinary shares of the Company are set out above. The directors do not have any non-beneficial interests in the

Company’s shares. None of the directors used ordinary shares as collateral for any loans. No director had either i) an interest in the Company’s preference shares or loan stocks ofany subsidiary or associated undertaking of the Group or ii) any corporate interests in the Company’s ordinary shares. All figures are as at 30 June 2018

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D. Executive directors’ interests in ordinary shares as at 30 June 2018

Scheme interests awarded, exercised and lapsed during the periodThe following table shows the changes in share interests. Employees, including executive directors, are not permittedto engage in any personal hedging strategies with regards to their Standard Chartered PLC shares, including hedgingagainst the share price of Standard Chartered PLC shares.

Changes in interests during the period 1 January to 30 June 2018

As at 1 January Awarded1Dividendsawarded7 Exercised2 Lapsed As at 30 June

Performanceperiod end Vesting date

W T Winters3

Restricted shares(buy-out)

314,822 – – – – 314,822 – 22 Sep 2018314,916 – – – – 314,916 – 22 Sep 2019

LTIP 2016–18 496,390 – – – – 496,390 11 Mar 2019 4 May 2019124,097 – – – – 124,097 11 Mar 2019 4 May 2020124,097 – – – – 124,097 11 Mar 2019 4 May 2021124,097 – – – – 124,097 11 Mar 2019 4 May 2022124,100 – – – – 124,100 11 Mar 2019 4 May 2023

LTIP 2017–19 118,550 – – – – 118,550 13 Mar 2020 13 Mar 2020118,550 – – – – 118,550 13 Mar 2020 13 Mar 2021118,550 – – – – 118,550 13 Mar 2020 13 Mar 2022118,550 – – – – 118,550 13 Mar 2020 13 Mar 2023118,551 – – – – 118,551 13 Mar 2020 13 Mar 2024

LTIP 2018–20 – 108,378 – – – 108,378 9 Mar 2021 9 Mar 2021

– 108,378 – – – 108,378 9 Mar 2021 9 Mar 2022

– 108,378 – – – 108,378 9 Mar 2021 9 Mar 2023

– 108,378 – – – 108,378 9 Mar 2021 9 Mar 2024

– 108,379 – – – 108,379 9 Mar 2021 9 Mar 2025

A N HalfordLTIP 2015–174 28,529 – – – 28,529 – 31 Dec 2017 19 Mar 2020LTIP 2016–185 296,417 – – – – 296,417 11 Mar 2019 4 May 2019

74,104 – – – – 74,104 11 Mar 2019 4 May 2020

74,104 – – – – 74,104 11 Mar 2019 4 May 202174,104 – – – – 74,104 11 Mar 2019 4 May 202274,105 – – – – 74,105 11 Mar 2019 4 May 2023

LTIP 2017–195 73,390 – – – – 73,390 13 Mar 2020 13 Mar 202073,390 – – – – 73,390 13 Mar 2020 13 Mar 202173,390 – – – – 73,390 13 Mar 2020 13 Mar 202273,390 – – – – 73,390 13 Mar 2020 13 Mar 202373,394 – – – – 73,394 13 Mar 2020 13 Mar 2024

LTIP 2018–20 – 67,108 – – – 67,108 9 Mar 2021 9 Mar 2021– 67,108 – – – 67,108 9 Mar 2021 9 Mar 2022

– 67,108 – – – 67,108 9 Mar 2021 9 Mar 2023– 67,108 – – – 67,108 9 Mar 2021 9 Mar 2024– 67,108 – – – 67,108 9 Mar 2021 9 Mar 2025

Deferred shares 20144 12,936 – 259 13,195 – – – 19 Mar 2018Underpin shares2015–174

14,264 – – – 14,264 – 31 Dec 2017 19 Mar 201814,264 – – – 14,264 – 31 Dec 2017 19 Mar 2020

Sharesave6 1,612 – – – – 1,612 – 1 Dec 2018

1 For the LTIP 2018–20 awards granted to Bill Winters and Andy Halford on 9 March 2018, the values granted were: Bill Winters: £3.3 million; Andy Halford: £2.1 million. The number ofshares awarded in respect of the LTIP took into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the overall value of theaward was maintained. Performance measures apply to LTIP 2018–20. The share price at grant was the closing price on the day before the grant date

2 On 19 March 2018, Andy Halford exercised deferred share awards over a total of 13,195 shares. The closing share price on the day before exercise was £7.6743 The unvested share awards held by Bill Winters are conditional rights under the 2011 Plan. Bill does not have to pay towards these awards4 The LTIP 2014–16, LTIP 2015–17, deferred shares 2014 and underpin shares 2015–17 held by Andy Halford are nil cost options under the 2011 Plan5 The LTIP 2016–18, LTIP 2017–19 and LTIP 2018–20 held by Andy Halford are conditional rights under the 2011 Plan. Andy does not have to pay towards these awards6 The Sharesave option held by Andy Halford is under the 2013 Sharesave Plan at an exercise price of GBP 5.5776 per share7 Dividend equivalent shares may be awarded on vesting for awards granted prior to 1 January 20188 Further details relating to the above awards and individual shareholding requirements can be found in the 2017 Annual Report and Accounts

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Shareholdings and share interestsThe following table summarises the executive directors’ shareholdings and share interests1.

Shareholdings Share awards

Shares heldbeneficially2,3

Vested butunexercised

share awards

Unvested shareawards not subject

to performancemeasures

Unvested shareawards subjectto performance

measures

W T Winters 836,388 – 629,738 2,127,423A N Halford 475,610 – 1,612 1,295,328

1 All figures are as at 30 June 2018 unless stated otherwise. No director had either (i) an interest in Standard Chartered PLC’s preference shares or loan stocks of any subsidiary orassociated undertaking of the Group or (ii) any corporate interests in Standard Chartered PLC’s ordinary shares

2 The beneficial interests of directors and connected persons in the ordinary shares of the Company are set out above. The executive directors do not have any non-beneficial interestsin the Company’s shares. None of the executive directors used ordinary shares as collateral for any loans

3 The shares held beneficially include shares awarded to deliver the executive directors’ fixed pay allowance

E. Share price information

The middle market price of an ordinary share at the close of business on 30 June 2018 was 692.60 pence. The shareprice range during the first half of 2018 was 690.90 pence to 849.20 pence (based on the closing middle marketprices).

F. Substantial shareholders

The Company and its shareholders have been granted partial exemption from the disclosure requirements under PartXV of the Securities and Futures Ordinance (SFO).

As a result of this exemption, shareholders no longer have an obligation under Part XV of the SFO (other thanDivisions 5, 11 and 12 thereof) to notify the Company of substantial shareholding interests, and the Company is nolonger required to maintain a register of interests of substantial shareholders under section 336 of the SFO. TheCompany is, however, required to file with The Stock Exchange of Hong Kong Limited any disclosure of interestsmade in the UK.

G. Code for Financial Reporting Disclosure

The UK Finance Code for Financial Reporting Disclosure sets out five disclosure principles together with supportingguidance. The principles are that UK banks will: provide high quality, meaningful and decision useful disclosures;review and enhance their financial instrument disclosures for key areas of interest; assess the applicability andrelevance of good practice recommendations to their disclosures, acknowledging the importance of such guidance;seek to enhance the comparability of financial statement disclosures across the UK banking sector; and clearlydifferentiate in their annual reports between information that is audited and information that is unaudited. The Group’sinterim financial statements for the six months ended 30 June 2018 have been prepared in accordance with theCode’s principles.

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GLOSSARY

AT1 or Additional Tier 1 capitalAdditional Tier 1 capital consists of instruments other than Common Equity Tier 1 that meet the Capital RequirementsRegulation (CRR) criteria for inclusion in Tier 1 capital.

Additional value adjustmentSee Prudent valuation adjustment.

Advanced Internal Rating Based (AIRB) approachThe AIRB approach under the Basel framework is used to calculate credit risk capital based on the Group’s ownestimates of prudential parameters.

Advances-to-deposits/customer advances-to-deposits (ADR) ratioThe ratio of total loans and advances to customers relative to total customer accounts. A low advances-to-depositsratio demonstrates that customer accounts exceed customer loans resulting from emphasis placed on generating ahigh level of stable funding from customers.

Alternative performance measuresA financial measure of historical or future financial performance, financial position, or cash flows, other than a financialmeasure defined or specified in the applicable financial reporting framework.

ASEANAssociation of South East Asian Nations (ASEAN) which includes the Group’s operations in Brunei, Indonesia,Malaysia, Philippines, Singapore, Thailand and Vietnam.

AUM or Assets under managementTotal market value of assets such as deposits, securities and funds held by the Group on behalf of the clients.

Basel IIThe capital adequacy framework issued by the Basel Committee on Banking Supervision (BCBS) in June 2006 in theform of the International Convergence of Capital Measurement and Capital Standards.

Basel IIIThe global regulatory standards on bank capital adequacy and liquidity, originally issued in December 2010 andupdated in June 2011. In December 2017, the BCBS published a document setting out the finalisation of the Basel IIIframework. The latest requirements issued in December 2017 will be implemented from 2022.

BCBS or Basel Committee on Banking SupervisionA forum on banking supervisory matters which develops global supervisory standards for the banking industry. Itsmembers are officials from 45 central banks or prudential supervisors from 28 countries and territories.

Basic underling earnings per share (EPS)Represents the underlying earnings divided by the basic weighted average number of shares.

Basis point (bps)One hundredth of a per cent (0.01 per cent); 100 basis points is 1 per cent.

CRD IV or Capital Requirements Directive IVA capital adequacy legislative package adopted by EU member states. CRD IV comprises the recast CapitalRequirements Directive and the Capital Requirements Regulation (CRR). The package implements the Basel IIIframework together with transitional arrangements for some of its requirements. CRD IV came into force on 1 January2014.

Capital resourcesSum of Tier 1 and Tier 2 capital after regulatory adjustments.

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CGU or Cash-generating unitThe smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflowsfrom other assets or groups of assets.

Cash shortfallThe difference between the cash flows that are due in accordance with the contractual terms of the instrument andthe cash flows that the Group expects to receive over the contractual life of the instrument.

ClawbackAn amount an individual is required to pay back to the Group, which has to be returned to the Group under certaincircumstances.

CRE or Commercial real estateIncludes office buildings, industrial property, medical centres, hotels, malls, retail stores, shopping centres, farm land,multi-family housing buildings, warehouses, garages and industrial properties. Commercial real estate loans are thosebacked by a package of commercial real estate assets.

CET1 or Common Equity Tier 1 capitalCommon Equity Tier 1 capital consists of the common shares issued by the Group and related share premium,retained earnings, accumulated other comprehensive income and other disclosed reserves, eligible non-controllinginterests and regulatory adjustments required in the calculation of Common Equity Tier 1.

CET1 ratioA measure of the Group’s CET1 capital as a percentage of risk-weighted assets.

Constant currencyConstant currency change is derived by applying a simple translation of the previous period functional currencynumber in each entity using the current average and period end US dollar exchange rates to the income statementand balance sheet respectively.

Contractual maturityContractual maturity refers to the final payment date of a loan or other financial instrument, at which point all theremaining outstanding principal and interest is due to be paid.

CIR or Cost to income ratioRepresents the proportion of total operating expenses to total operating income. Underlying CIR represents theproportion of total underlying expenses to total underling operating income.

Countercyclical capital bufferThe countercyclical capital buffer (CCyB) is part of a set of macroprudential instruments, designed to help counterprocyclicality in the financial system. CCyB as defined in the Basel III standard provides for an additional capitalrequirement of up to 2.5 per cent of risk-weighted assets in a given jurisdiction. The Bank of England’s Financial PolicyCommittee has the power to set the CCyB rate for the United Kingdom. Each bank must calculate its‘institution-specific’ CCyB rate, defined as the weighted average of the CCyB rates in effect across the jurisdictions inwhich it has credit exposures. The institution-specific CCyB rate is then applied to a bank’s total risk weighted assets.

Counterparty credit riskThe risk that a counterparty defaults before satisfying its obligations under a derivative, a securities financingtransaction (SFT) or a similar contract.

Cover ratioThe ratio of impairment provisions for each stage to the gross loan exposure for each stage. For stage 3, the coverratio is also presented as the ratio of impairment provisions plus the realisable value of collateral to the gross loanexposure.

Cover ratio (after collateral)Represents the extent to which non-performing loans are covered by both impairment provisions, and collateral heldagainst the exposure.

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CCF or Credit conversion factorAn estimate of the amount the Group expects a customer to have drawn further on a facility limit at the point ofdefault. This is either prescribed by CRR or modelled by the bank.

CDS or Credit default swapsA credit derivative is an arrangement whereby the credit risk of an asset (the reference asset) is transferred from thebuyer to the seller of protection. A credit default swap is a contract where the protection seller receives premium orinterest-related payments in return for contracting to make payments to the protection buyer upon a defined creditvent. Credit events normally include bankruptcy, payment default on a reference asset or assets, or downgradesby a rating agency.

Credit institutionsAn institution whose business is to receive deposits or other repayable funds from the public and to grant credits forits own account.

Credit risk mitigationCredit risk mitigation is a process to mitigate potential credit losses from any given account, customer or portfolio byusing a range of tools such as collateral, netting agreements, credit insurance, credit derivatives and guarantees.

CVA or Credit valuation adjustmentsAn adjustment to the fair value of derivative contracts that reflects the possibility that the counterparty may defaultsuch that the Group would not receive the full market value of the contracts.

Customer accountsMoney deposited by all individuals and companies which are not credit institutions including securities sold underrepurchase agreement (see repo/reverse repo). Such funds are recorded as liabilities in the Group’s balance sheetunder customer accounts.

Days past dueOne or more days that interest and/or principal payments are overdue based on the contractual terms.

DVA or Debit valuation adjustmentAn adjustment to the fair value of derivative contracts that reflect the possibility that the Group may default and notpay the full market value of contracts.

Debt securitiesDebt securities are assets on the Group’s balance sheet and represent certificates of indebtedness of creditinstitutions, public bodies or other undertakings excluding those issued by central banks.

Debt securities in issueDebt securities in issue are transferrable certificates of indebtedness of the Group to the bearer of the certificate.These are liabilities of the Group and include certificates of deposits.

DTA or Deferred tax assetIncome taxes recoverable in future periods in respect of deductible temporary differences between the accountingand tax base of an asset or liability that will result in tax deductible amounts in future periods, the carry-forward of taxlosses or the carry-forward of unused tax credits.

DTL or Deferred tax liabilityIncome taxes payable in future periods in respect of taxable temporary differences between the accounting and taxbase of an asset or liability that will result in taxable amounts in future periods.

DefaultFinancial assets in default represent those that are at least 90 days past due in respect of principal or interest and/orwhere the assets are otherwise considered to be unlikely to pay, including those that are credit impaired.

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Defined benefit obligationThe present value of expected future payments required to settle the obligations of a defined benefit scheme resultingfrom employee service.

Defined benefit schemePension or other post-retirement benefit scheme other than a defined contribution scheme.

Defined contribution schemeA pension or other post-retirement benefit scheme where the employer’s obligation is limited to its contributions to thefund.

DelinquencyA debt or other financial obligation is considered to be in a state of delinquency when payments are overdue. Loansand advances are considered to be delinquent when consecutive payments are missed. Also known as arrears.

Deposits by banksDeposits by banks comprise amounts owed to other domestic or foreign credit institutions by the Group includingsecurities sold under repo.

Diluted underling earnings per share (EPS)Represents the underlying earnings divided by the diluted weighted average number of shares.

Dividend per shareRepresents the entitlement of each shareholder in the share of the profits of the company. Calculated in the lowestunit of currency in which the shares are quoted.

Early alert, purely and non-purely precautionaryA borrower’s account which exhibits risks or potential weaknesses of a material nature requiring closer monitoring,supervision, or attention by management. Weaknesses in such a borrower’s account, if left uncorrected, could resultin deterioration of repayment prospects and the likelihood of being downgraded to credit grade 12 or worse. When anaccount is on early alert, it is classified as either purely precautionary or non-purely precautionary. A purelyprecautionary account is one that exhibits early alert characteristics but these do not present any imminent creditconcern. If the symptoms present an imminent credit concern, an account will be considered for classification asnon-purely precautionary.

Effective tax rateThe tax on profit/(losses) on ordinary activities as a percentage of profit/(loss) on ordinary activities before taxation.

Encumbered assetsOn-balance sheet assets pledged or used as collateral in respect of certain of the Group’s liabilities.

EU or European UnionThe European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe.

EurozoneRepresents the 19 EU countries that have adopted the euro as their common currency.

ECL or Expected credit lossRepresents the present value of expected cash shortfalls over the residual term of a financial asset, undrawncommitment or financial guarantee.

Expected lossThe Group measure of anticipated loss for exposures captured under an internal ratings-based credit risk approachfor capital adequacy calculations. It is measured as the Group-modelled view of anticipated loss based on probabilityof default, loss given default and exposure at default, with a one-year time horizon.

ExposuresCredit exposures represent the amount lent to a customer, together with any undrawn commitments.

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EAD or Exposure at defaultThe estimation of the extent to which the Group may be exposed to a customer or counterparty in the event of, and atthe time of, that counterparty’s default. At default, the customer may not have drawn the loan fully or may alreadyhave repaid some of the principal, so that exposure is typically less than the approved loan limit.

ECAI or External Credit Assessment InstitutionExternal credit ratings are used to assign risk-weights under the standardised approach for sovereigns, corporatesand institutions. The external ratings are from credit rating agencies that are registered or certified in accordance withthe credit rating agencies regulation or from a central bank issuing credit ratings which is exempt from the applicationof this regulation.

FCA or Financial Conduct AuthorityThe Financial Conduct Authority regulates the conduct of financial firms and, for certain firms, prudential standards inthe UK. It has a strategic objective to ensure that the relevant markets function well.

ForbearanceForbearance takes place when a concession is made to the contractual terms of a loan in response to an obligor’sfinancial difficulties. The Group classifies such modified loans as either ‘Forborne – not impaired loans’ or ‘Loanssubject to forbearance – impaired’. Once a loan is categorised as either of these, it will remain in one of these twocategories until the loan matures or satisfies the ‘curing’ conditions described in Note 7 to the financial statements.

Forborne – not impaired loansLoans where the contractual terms have been modified due to financial difficulties of the borrower, but the loan is notconsidered to be impaired. See ‘Forbearance’.

Free deliveriesA transaction where a bank takes receipt of a debt or equity security, a commodity or foreign exchange withoutmaking immediate payment, or where a bank delivers a debt or equity security, a commodity or foreign exchangewithout receiving immediate payment.

Free fundsFree funds include equity capital, retained reserves, current year unremitted profits and capital injections net ofproposed dividends. It does not include debt capital instruments, unrealised profits or losses or any non-cash items.

Funded/unfunded exposuresExposures where the notional amount of the transaction is funded or unfunded. Represents exposures where acommitment to provide future funding is made but funds have been released/not released.

FVA or Funding valuation adjustmentsFVA reflects an adjustment to fair value in respect of derivative contracts that reflect the funding costs that the marketparticipant would incorporate when determining an exit price.

G-SIBs or Global Systemically Important BanksGlobal banking financial institutions whose size, complexity and systemic interconnectedness mean that their distressor failure would cause significant disruption to the wider financial system and economic activity. The list of G-SIBs isassessed under a framework established by the FSB and the BCBS. In the EU, the G-SIB framework is implementedvia CRD IV and G-SIBs are referred to as Global Systemically Important Institutions (G-SIIs).

G-SIB bufferA CET1 capital buffer which results from designation as a G-SIB. The G-SIB buffer is between 1% and 3.5%,depending on the allocation to one of five buckets based on the annual scoring. The G-SIB buffer is being phased inby 1 January 2019. In the EU, the G-SIB buffer is implemented via CRD IV as Global Systemically ImportantInstitutions (G-SII) buffer requirement.

Interest rate riskThe risk of an adverse impact on the Group’s income statement due to changes in interest rates.

IRB approach or internal ratings-based approachRisk-weighting methodology in accordance with the Basel Capital Accord where capital requirements are based on afirm’s own estimates of prudential parameters.

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IMA approach or internal model approachThe approach used to calculate market risk capital and RWA with an internal market risk model approved by the PRAunder the terms of CRD IV/CRR.

IAS or International Accounting StandardA standard that forms part of the International Financial Reporting Standards framework.

IASB or International Accounting Standards BoardAn independent standard-setting body responsible for the development and publication of IFRS, and approvinginterpretations of IFRS standards that are recommended by the IFRS Interpretations Committee (IFRIC).

IFRS or International Financial Reporting StandardsA set of international accounting standards developed and issued by the International Accounting Standards Board,consisting of principles-based guidance contained within IFRSs and IASs. All companies that have issued publiclytraded securities in the EU are required to prepare annual and interim reports under IFRS and IAS standards that havebeen endorsed by the EU.

IFRICThe IFRS Interpretations Committee supports the IASB in providing authoritative guidance on the accountingtreatment of issues not specifically dealt with by existing IFRSs and IASs.

Investment gradeA debt security, treasury bill or similar instrument with a credit rating measured by external agencies of AAA to BBB.

Leverage ratioA ratio introduced under CRD IV that compares Tier 1 capital to total exposures, including certain exposures heldoff-balance sheet as adjusted by stipulated credit conversion factors. Intended to be a simple, non-risk basedbackstop measure.

Liquid asset ratioRatio of total liquid assets to total assets. Liquid assets comprise cash (less restricted balances), net interbank,treasury bills and debt securities less illiquid securities.

Liquidation portfolioA portfolio of assets which is beyond our current risk appetite metrics and is held for liquidation.

LCR or Liquidity coverage ratioThe ratio of the stock of high-quality liquid assets to expected net cash outflows over the following 30 days.High-quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be centralbank eligible.

Loan exposureLoans and advances to customers reported on the balance sheet held at amortised cost or FVOCI, non-cancellablecredit commitments and cancellable credit commitments for credit cards and overdraft facilities.

Loans and advancesThis represents lending made under bilateral agreements with customers entered into in the normal course ofbusiness and is based on the legal form of the instrument.

Loans to banksAmounts loaned to credit institutions including securities bought under Reverse repo.

LTV or loan-to-value ratioA calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of realproperty. The loan-to-value ratio is used in determining the appropriate level of risk for the loan and therefore thecorrect price of the loan to the borrower.

Loans past dueLoans on which payments have been due for up to a maximum of 90 days including those on which partial paymentsare being made.

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Loans subject to forbearance – impairedLoans where the terms have been renegotiated on terms not consistent with current market levels due to financialdifficulties of the borrower. Loans in this category are necessarily impaired. See ‘Forbearance’.

Loss rateUses an adjusted gross charge-off rate, developed using monthly write-off and recoveries over the preceding 12months and total outstanding balances.

LGD or Loss given defaultThe percentage of an exposure that a lender expects to lose in the event of obligor default.

MalusAn arrangement that permits the Group to prevent vesting of all or part of the amount of an unvested variableremuneration award, due to a specific crystallised risk, behaviour, conduct or adverse performance outcome.

Master netting agreementAn agreement between two counterparties that have multiple derivative contracts with each other that provides for thenet settlement of all contracts through a single payment, in a single currency, in the event of default on, or terminationof, any one contract.

Mezzanine capitalFinancing that combines debt and equity characteristics. For example, a loan that also confers some profitparticipation to the lender.

MREL or minimum requirement for own funds and eligible liabilitiesA requirement under the Bank Recovery and Resolution Directive for EU resolution authorities to set a minimumrequirement for own funds and eligible liabilities for banks, implementing the FSB’s Total Loss Absorbing Capacity(TLAC) standard. MREL is intended to ensure that there is sufficient equity and specific types of liabilities to facilitatean orderly resolution that minimises any impact on financial stability and ensures the continuity of critical functions andavoids exposing taxpayers to loss.

Net asset value (NAV) per shareRatio of net assets (total assets less total liabilities) to the number of ordinary shares outstanding at the end of areporting period.

Net exposureThe aggregate of loans and advances to customers/loans and advances to banks after impairment provisions,restricted balances with central banks, derivatives (net of master netting agreements), investment debt and equitysecurities, and letters of credit and guarantees.

NII or Net interest incomeThe difference between interest received on assets and interest paid on liabilities.

NIM or Net interest marginNet interest income divided by average interest earning assets.

NSFR or Net stable funding ratioThe ratio of available stable funding to required stable funding over a one-year time horizon, assuming a stressedscenario. It is a longer-term liquidity measure designed to restrain the amount of wholesale borrowing and encouragestable funding over a one-year time horizon.

Net tangible asset value per shareRatio of net tangible assets (total tangible assets less total liabilities) to the number of ordinary shares outstanding atthe end of a reporting period.

NPLs or non-performing loansAn NPL is any loan that is more than 90 days past due or is otherwise individually impaired. This excludes Retail loansrenegotiated at or after 90 days past due, but on which there has been no default in interest or principal payments formore than 180 days since renegotiation, and against which no loss of principal is expected.

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Non-linearityNon-linearity of expected credit loss occurs when the average of expected credit loss for a portfolio is higher than thebase case (median) due to the fact that bad economic environment could have a larger impact on expected creditloss calculation than good economic environment.

Normalised itemsSee ‘Underlying earnings’.

Operating expensesStaff and premises costs, general and administrative expenses, depreciation and amortisation. Underlying operatingexpenses exclude expenses as described in ‘Underlying earnings’. A reconciliation between underlying and statutoryearnings is contained in Note 2 to the financial statements.

Operating income or operating profitNet interest, net fee and net trading income, as well as other operating income.

Underlying operating income represents the income line items above, on an underlying basis. See ‘Underlingearnings’.

OTC or Over-the-counter derivativesA bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.

OCA or Own credit adjustmentAn adjustment to the Group’s issued debt designated at fair value through profit or loss that reflects the possibility thatthe Group may default and not pay the full market value of the contracts.

Physical risksThe risk of increased extreme weather events including flood, drought and sea level rise.

Pillar 1The first pillar of the three pillars of the Basel framework which provides the approach to calculation of the minimumcapital requirements for credit, market and operational risk. Minimum capital requirements are 8 per cent of theGroup’s risk-weighted assets.

Pillar 2The second pillar of the three pillars of the Basel framework which requires banks to undertake a comprehensiveassessment of their risks and to determine the appropriate amounts of capital to be held against these risks whereother suitable mitigants are not available.

Pillar 3The third pillar of the three pillars of the Basel framework which aims to provide a consistent and comprehensivedisclosure framework that enhances comparability between banks and further promotes improvements in riskpractices.

Private equity investmentsEquity securities in operating companies generally not quoted on a public exchange. Investment in private equity ofteninvolves the investment of capital in private companies. Capital for private equity investment is raised by retail orinstitutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growthcapital, distressed investments and mezzanine capital.

PD or Probability of defaultPD is an internal estimate for each borrower grade of the likelihood that an obligor will default on an obligation over agiven time horizon.

Probability weightedObtained by considering the values the metric can assume, weighted by the probability of each value occurring.

Profit (loss) attributable to ordinary shareholdersProfit (loss) for the year after non-controlling interests and dividends declared in respect of preference sharesclassified as equity.

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PVA or Prudent valuation adjustmentAn adjustment to CET1 capital to reflect the difference between fair value and prudent value positions, where theapplication of prudence results in a lower absolute carrying value than recognised in the financial statements.

PRA or Prudential Regulation AuthorityThe Prudential Regulation Authority is the statutory body responsible for the prudential supervision of banks, buildingsocieties, credit unions, insurers and a small number of significant investment firms in the UK. The PRA is a part of theBank of England.

Repo/reverse repoA repurchase agreement or repo is a short-term funding agreement, which allows a borrower to sell a financial asset,such as asset-backed securities or government bonds as collateral for cash. As part of the agreement the borroweragrees to repurchase the security at some later date, usually less than 30 days, repaying the proceeds of the loan. Forthe party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverserepurchase agreement or reverse repo.

Residential mortgageA loan to purchase a residential property which is then used as collateral to guarantee repayment of the loan. Theborrower gives the lender a lien against the property, and the lender can foreclose on the property if the borrowerdoes not repay the loan per the agreed terms. Also known as a home loan.

RoE or Return on equityRepresents the ratio of the current year’s profit available for distribution to ordinary shareholders to the weightedaverage ordinary shareholders equity for the reporting period. Underlying return on equity represents the ratio aboveusing underlying earnings. See ‘Underling earnings’.

RoRWA or Return on risk-weighted assetsProfit before tax for year as a percentage of RWA. Profit may be statutory or underlying and is specified where used.See ‘RWA’ and ‘Underlying earnings’.

RoTE or Return on tangible equityRepresents the ratio of the current period’s profit available for distribution to ordinary shareholders, to the weightedaverage ordinary shareholders equity less the average goodwill and intangibles for the reporting period. Underlyingreturn on tangible equity represents the ratio above using underlying earnings. See ‘Underling earnings’.

RWA or Risk-weighted assetsA measure of a bank’s assets adjusted for their associated risks, expressed as a percentage of an exposure value inaccordancewith the applicable standardised or IRB approach provisions.

Risks-not-in-VaR (RNIV)A framework for identifying and quantifying marginal types of market risk that are not captured in the Value at Risk(VaR) measure for any reason, such as being a far-tail risk or the necessary historical market data not being available.

Roll rateUses a matrix that gives average loan migration rate from delinquency states from period to period. A matrixmultiplication is then performed to generate the final PDs by delinquency bucket over different time horizons.

Secured (fully and partially)A secured loan is a loan in which the borrower pledges an asset as collateral for a loan which, in the event that theborrower defaults, the Group is able to take possession of. All secured loans are considered fully secured if the fairvalue of the collateral is equal to or greater than the loan at the time of origination. All other secured loans areconsidered to be partly secured.

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SecuritisationSecuritisation is a process by which credit exposures are aggregated into a pool, which is used to back newsecurities. Under traditional securitisation transactions, assets are sold to a special purpose entity (SPE) who thenissues new securities to investors at different levels of seniority (credit tranching). This allows the credit quality of theassets to be separated from the credit rating of the originating institution and transfers risk to external investors in away that meets their risk appetite. Under synthetic securitisation transactions, the transfer of risk is achieved by theuse of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originatinginstitution.

Senior debtDebt that takes priority over other unsecured or otherwise more ‘junior’ debt owed by the issuer. Senior debt hasgreater seniority in the issuer’s capital structure after subordinated debt. In the event the issuer goes bankrupt, seniordebt theoretically must be repaid before other creditors receive any payment.

SICR or Significant increase in credit riskAssessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (afterconsidering the passage of time).

Sovereign exposuresExposures to central governments and central government departments, central banks and entities owned orguaranteed by the aforementioned. Sovereign exposures, as defined by the European Banking Authority, include onlyexposures to central governments.

Stage 1Assets have not experienced a significant increase in credit risk since origination and impairment recognised on thebasis of 12 months expected credit losses.

Stage 2Assets have experienced a significant increase in credit risk since origination and impairment is recognised on thebasis of lifetime expected credit losses.

Stage 3Assets that are in default and considered credit-impaired (non-performing loans).

Standardised approachIn relation to credit risk, a method for calculating credit risk capital requirements using External Credit AssessmentInstitutions (ECAI) ratings and supervisory risk weights. In relation to operational risk, a method of calculating theoperational capital requirement by the application of a supervisory defined percentage charge to the gross income ofeight specified business lines.

Structured noteAn investment tool which pays a return linked to the value or level of a specified asset or index and sometimes offerscapital protection if the value declines. Structured notes can be linked to equities, interest rates, funds, commoditiesand foreign currency.

Subordinated liabilitiesLiabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositorsand other creditors of the issuer.

Tier 1 capitalThe sum of Common Equity Tier 1 capital and Additional Tier 1 capital.

Tier 1 capital ratioTier 1 capital as a percentage of risk-weighted assets.

Tier 2 capitalTier 2 capital comprises qualifying subordinated liabilities and related share premium accounts.

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TLAC or Total loss absorbing capacityAn international standard for TLAC issued by the FSB, which requires G-SIBs to have sufficient loss-absorbing andrecapitalisation capacity available in resolution, to minimise impacts on financial stability, maintain the continuity ofcritical functions and avoid exposing public funds to loss.

TSR or Total shareholder returnThe total return of the Group’s equity (share price growth and dividends) to investors.

Transition risksThe risk of changes to market dynamics or sectoral economics due to governments’ response to climate change.

UK bank levyA levy that applies to certain UK banks and the UK operations of foreign banks The levy is payable each year basedon a percentage of the chargeable equities and liabilities on the Group’s consolidated balance sheet date. Keyexclusions from chargeable equities and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repossecured on certain sovereign debt and liabilities subject to netting.

UnbiasedNot overly optimistic or pessimistic, represents information that is not slanted, weighted, emphasised, deemphasisedor otherwise manipulated to increase the probability that the financial information will be received favourably orunfavourably by users.

Underlying earningsThe Group’s statutory performance adjusted for restructuring and other items representing profits or losses of acapital nature; amounts consequent to investment transactions driven by strategic intent; and other infrequent and/orexceptional transactions that are significant or material in the context of the Group’s normal business earnings for theperiod, and items which management and investors would ordinarily identify separately when assessing performanceperiod-by-period. A reconciliation between underlying and statutory performance is contained in Note 2 to thefinancial statements.

Unlikely to payIndications of unlikeliness to pay shall include placing the credit obligation on non-accrued status; the recognition of aspecific credit adjustment resulting from a significant perceived decline in credit quality subsequent to the Grouptaking on the exposure;; selling the credit obligation at a material credit related economic loss; the Group consentingto a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligationcaused by the material forgiveness, or postponement, of principal, interest or, where relevant fees; filing for theobligor’s bankruptcy or a similar order in respect of an obligor’s credit obligation to the Group; the obligor has soughtor has been placed in bankruptcy or similar protection where this would avoid or delay repayment of a creditobligation to the Group.

VaR or Value at RiskA quantitative measure of market risk estimating the potential loss that will not be exceeded in a set time period at aset statistical confidence level.

ViU or Value-in-UseThe present value of the future expected cash flows expected to be derived from an asset or CGU.

Write-downsAfter an advance has been identified as impaired and is subject to an impairment provision, the stage may be reachedwhereby it is concluded that there is no realistic prospect of further recovery. Write downs will occur when and to theextent that, the whole or part of a debt is considered irrecoverable.

XVAThe term used to incorporate credit, debit and funding valuation adjustments to the fair value of derivative financialinstruments. See ‘CVA’, ‘DVA’ and ‘FVA’.

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Standard Chartered PLC – Shareholder information

Shareholder information

Dividend and interest payment dates

2018 interim dividend

Ex-dividend date1 9 August 2018Record date for dividend 10 August 2018Dividend payment date 22 October 2018

2018 final dividend (provisional only)

Results and dividend announcement date 26 February 2019

Preference shares Next half-yearly dividend

7 3/8 per cent Non-cumulative irredeemable preference shares of £1 each 1 October 20188 ¼ per cent Non-cumulative irredeemable preference shares of £1 each 1 October 2018

6.409 per cent Non-cumulative preference shares of $5 each 30 July 20187.014 per cent Non-cumulative preference shares of $5 each 30 July 2018

1 Ex-dividend date is Wednesday 8 August 2018 for the Hong Kong branch register

Previous dividend payments (unadjusted for the impact of the 2015/2010/2008 Rights Issues)

Dividend and financial year Payment date Dividend per ordinary share1Cost of one new ordinary shareunder share dividend scheme

Interim 2006 11 October 2006 20.83c/11.14409p/HK$1.622699 £13.2360/$25.03589Final 2006 11 May 2007 50.21c/25.17397p/HK$3.926106 £14.2140/$27.42591Interim 2007 10 October 2007 23.12c/11.39043p/HK$1.794713 £15.2560/$30.17637Final 2007 16 May 2008 56.23c/28.33485p/HK$4.380092 £16.2420/$32.78447Interim 2008 9 October 2008 25.67c/13.96133p/HK$1.995046 £14.00/$26.0148Final 2008 15 May 2009 42.32c/28.4693p/HK$3.279597 £8.342/$11.7405Interim 2009 8 October 2009 21.23c/13.25177p/HK$1.645304 £13.876/$22.799Final 2009 13 May 2010 44.80c/29.54233p/HK$3.478306 £17.351/$26.252Interim 2010 5 October 2010 23.35c/14.71618p/HK$1.811274/INR0.9841241 £17.394/$27.190Final 2010 11 May 2011 46.65c/28.272513p/HK$3.623404/INR1.99751701 £15.994/$25.649Interim 2011 7 October 2011 24.75c/15.81958125p/HK$1.928909813/INR1.137971251 £14.127/$23.140Final 2011 15 May 2012 51.25c/31.63032125p/HK$3.9776083375/INR2.66670151 £15.723/$24.634Interim 2012 11 October 2012 27.23c/16.799630190p/HK$2.111362463/INR1.3498039501 £13.417/$21.041Final 2012 14 May 2013 56.77c/36.5649893p/HK$4.4048756997/INR2.9762835751 £17.40/$26.28792Interim 2013 17 October 2013 28.80c/17.8880256p/HK$2.233204992/INR1.68131 £15.362/$24.07379Final 2013 14 May 2014 57.20c/33.9211444p/HK$4.43464736/INR3.3546261 £11.949$19.815Interim 2014 20 October 2014 28.80c/17.891107200p/HK$2.2340016000/INR1.6718425601 £12.151/$20.207Final 2014 14 May 2015 57.20c/37.16485p/HK$4.43329/INR3.5140591 £9.797/$14.374Interim 2015 19 October 2015 14.40c/9.3979152p/HK$1.115985456/INR0.861393721 £8.5226/$13.34383Final 2015 No dividend declared N/A N/AInterim 2016 No dividend declared N/A N/AFinal 2016 No dividend declared N/A N/AInterim 2017 No dividend declared N/A N/AFinal 2017 17 May 2018 11.00c/7.88046p/HK$0.86293/INR0.653643340 £7.7600/$10.83451

1 The INR dividend is per Indian Depository Receipt

ShareCare

ShareCare is available to shareholders on the Company’s UK register who have a UK address and bank account, andallows you to hold your Standard Chartered shares in a nominee account. Your shares will be held in electronic formso you will no longer have to worry about keeping your share certificates safe. If you join ShareCare you will still beinvited to attend the Company’s AGM and you will still receive your dividend at the same time as everyone else.ShareCare is free to join and there are no annual fees to pay. If you would like to receive more information pleasecontact the shareholder helpline on 0370 702 0138.

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Donating shares to ShareGift

Shareholders who have a small number of shares often find it uneconomical to sell them. An alternative is to considerdonating them to the charity ShareGift (registered charity 1052686), which collects donations of unwanted shares untilthere are enough to sell and uses the proceeds to support UK charities. Further information can be obtained from theCompany’s Registrars or from ShareGift on 020 7930 3737 or from sharegift.org. There is no implication for capitalgains Tax (no gain no loss) when you donate shares to charity and UK tax-payers may be able to claim income taxrelief on the value of their donation.

Bankers’ Automated Clearing System (BACS)

Dividends can be paid straight into your bank or building society account. Please register online atinvestorcentre.co.uk or contact our registrar for a mandate form.

Registrars and shareholder enquiries

The Company’s ordinary shares are listed on the Official List and traded on the London Stock Exchange. TheCompany’s ordinary shares are also listed on The Stock Exchange of Hong Kong Limited, and through IndianDepository Receipts on the BSE Limited (Bombay Stock Exchange) and National Stock Exchange of India Limited.

If you have any enquiries relating to your shareholding and you hold your shares on the United Kingdom register,please contact our registrar Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol, BS996ZZ, or contact the shareholder helpline on 0370 702 0138.

If you hold your shares on the Hong Kong branch register and you have enquiries, please contact ComputershareHong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.You can check your shareholding at: computershare.com/hk/investors.

If you hold Indian Depository Receipts and you have enquiries, please contact Karvy Selenium, Tower- B, Plot No. 31& 32., Financial District, Nanakramguda, Serilingampally Mandal, Hyderabad, 500032, India.

Chinese translation

If you would like a Chinese version of this Half Year Report, please contact: Computershare Hong Kong InvestorServices Limited at 17M.Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong.Kong. 本半年報告之中文

譯本可向香港中央證券登記有限公司索取，地址：香港灣仔皇后大道東183號合和中心17M樓。Shareholders on theHong Kong branch register who have asked to receive corporate communications in either Chinese or English canchange this election by contacting Computershare. If there is a dispute between any translation and the Englishversion of this Half Year Report, the English text shall prevail.

Taxation

Information on taxation applying to dividends paid to you if you are a shareholder in the United Kingdom, Hong Kongand the United States will be sent to you with your dividend documents.

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Forward-looking statements

This document may contain ‘forward-looking statements’ that are based on current expectations or beliefs, as well asassumptions about future events. These forward-looking statements can be identified by the fact that they do notrelate only to historical or current facts. Forward-looking statements often use words such as ‘may’, ‘could’, ‘will’,expect’, ‘intend’, ‘estimate’, ‘anticipate’, ‘believe’, ‘plan’, ‘seek’, ‘continue’ or other words of similar meaning. By theirvery nature, such statements are subject to known and unknown risks and uncertainties and can be affected by otherfactors that could cause actual results, and the Group’s plans and objectives, to differ materially from those expressedor implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relyingon, any forward-looking statements. There are several factors which could cause actual results to differ materially fromthose expressed or implied in forward-looking statements. The factors that could cause actual results to differmaterially from those described in the forward-looking statements include (but are not limited to) changes in global,political, economic, business, competitive, market and regulatory forces or conditions, future exchange and interestrates, changes in tax rates, future business combinations or dispositions and other factors specific to the Group. Anyforward-looking statement contained in this document is based on past or current trends and/or activities of theGroup and should not be taken as a representation that such trends or activities will continue in the future.

No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for thecurrent year or future years will necessarily match or exceed the historical or published earnings of the Group. Eachforward-looking statement speaks only as of the date of the particular statement. Except as required by anyapplicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward lookingstatement contained within this document, regardless of whether those statements are affected as a result of newinformation, future events or otherwise. Nothing in this document shall constitute, in any jurisdiction, an offer orsolicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation oradvice in respect of any securities or other financial instruments or any other matter.

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